FOR IMMEDIATE RELEASE

New Multi-State Report Released at Federal Reserve Board
Meeting Detail Large Disparities in High-Cost Lending

Today at the Federal Reserve Board’s Community Advisory
Council Meeting, a multi-state collaboration of advocacy agencies released a
report showing that the largest lenders with both prime and subprime businesses
make a disproportionate share of their higher-cost loans to minority borrowers
across the nation. The groups called on the Federal Reserve Board to be
proactive and investigate systemic and specific corporate fair lending
violations.

“Defaults and foreclosures of subprime loans are
skyrocketing. Stock prices of subprime
lenders are crumbling, and concerns are being raised on Wall Street about
underwriting standards in the subprime lending industry. This report demonstrates that concentrations
of high interest subprime loans have a disproportionate impact on minority
neighborhoods and households”, states Marva Williams of Woodstock Institute, a
presenter and member of the Consumer Advisory Council.

The report, Paying More for the American Dream: A
Multi-State Analysis of Higher Cost Home Purchase Lending, examines the cost of
borrowing in six metropolitan areas in the United
States. These areas include large urban
areas – New York City, Los
Angeles, Chicago,
and Boston, – as well as the
smaller urban areas of Charlotte, NC
and Rochester, NY.
The study confirms that large disparities remain in the pricing of home
purchase loans.

§ In these six
metropolitan areas, African American borrowers were 3.8 times more likely to
receive a higher-cost home purchase loan than were white borrowers.

§ In the same
six metro areas, Latino borrowers were 3.6 times more likely than white
borrowers to receive a higher-cost home purchase loan.

The study focuses on lending by Citigroup, Countrywide,
GMAC, HSBC, JP Morgan Chase, Washington Mutual, and Wells Fargo. These lenders
were analyzed because they are among the biggest financial institutions in the
nation, and all originated a substantial volume of both higher-cost subprime
and lower-cost prime loans.

§ For these
seven lenders, the percentage of total home purchase loans to African Americans
that were higher-cost was six times greater than the percentage of higher cost
home purchase loans to whites in the six cities (41.1 percent vs. 6.9 percent).

§ In the same
cities, for the same lenders, the percentage of total home purchase loans to
Latinos that were higher-cost was 4.8 times greater than the percentage of
higher cost home purchase loans to whites (32.8 percent vs. 6.9 percent).

§ In each of
the cities examined, the seven lenders combined showed larger African
American/white and Latino/white disparities than those exhibited in the overall
lending market.

§ The worst
disparity for any individual lending group was observed in Chicago, where
African American borrowers were 14 times more likely to receive a higher-cost
home purchase loan from Wells Fargo than were white borrowers (35.3 percent vs.
2.5 percent).[1]

The report also offers a case study of one lender –
Washington Mutual (WaMu), to highlight the significant role that different
lending channels play in home loan pricing. WaMu’s higher-cost subprime lender,
Long Beach Mortgage Company, was WaMu’s main lender to African American and
Latino borrowers in the six survey cities.

§ Regardless
of race, 90 percent of Long Beach
borrowers received higher-cost home purchase loans.

§ Long Beach
Mortgage accounted for 75.9 percent of all WaMu home purchase loans to African
Americans, and 64.7 percent of all WaMu home purchase loans to Latinos.

§ In contrast,
WaMu’s lower-cost prime lender, Washington Mutual Bank, accounted for more than
80 percent of all WaMu home purchase loans to whites.

§ Less than 1
percent of the loans originated by Washington Mutual Bank were higher-cost
loans.

Which lending channel a borrower enters – prime or
subprime – has a large impact on the price she will pay for her home loan.

New York City
was especially hard hit by these seven lenders. African American borrowers were
more than 12 times as likely to receive a higher-cost home purchase loan as
were their white counterparts. Latino borrowers in New
York were almost eight times more likely than white
borrowers to receive a higher-cost home purchase loan.

These disparities are far too high to be explained by the
credit records of borrowers and impact middle-income as well as moderate-income
minority borrowers. The cost of being steered into a subprime loan can be tens
of thousands of dollars over the life of the mortgage.


Collaboration

The research collaboration involved nonprofit advocacy
agencies from the California Reinvestment Coalition, Community Reinvestment
Association of North Carolina, Empire Justice Center,
Massachusetts Affordable Housing Alliance,
Neighborhood Economic Development Assistance Project (NEDAP), and Woodstock
Institute. These organizations, which work regionally and nationally, are
collectively raising concerns about national lending practices that are
negatively impacting local communities.

The presentation at the Federal Reserve Board was made by
Marva Williams of Woodstock Institute and Sarah Ludwig of NEDAP.

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