March 6, 2008
Defunct "high-risk" mortgage lenders were far more active in minority areas in major U.S. cities than white neighborhoods during the recent property boom, according to a report released on Thursday.
Using 2006 data, the report from nonprofit counseling organizations in six states – entitled "Paying More for the American Dream" – found the high-risk lender market share in neighborhoods where at least 80 percent of residents are nonwhite was 3.6 times higher than in neighborhoods where they made up less than 10 percent of inhabitants.
In Los Angeles the figure was 9.5 times higher in minority-dominated neighborhoods, 4.2 times higher in Boston, 3.7 times higher in Chicago, and 3.5 times higher in New York City than in predominantly white neighborhoods.
The report focused on 35 lenders that have either gone bankrupt, have closed down or been sold.
"In many cases these lenders’ failures were tied to overly aggressive lending practices such as offering adjustable rate mortgages with low initial teaser rates, 100 percent financing, and low or no income documentation loans," the report said.
"As these lenders have left the market, distressed homeowners with loans from these institutions may face increasing difficulty in finding an interested party to negotiate a loan modification or other alternative to foreclosure," it said.
The report recommended requiring loan servicers to conduct broad scale, streamlined loan modifications on all loans with interest rate resets.
Under the recommendations, servicers would also have to develop rescue refinance loan products operated by state housing finance agencies for homeowners at risk of foreclosure and increase funding for housing counseling agencies.
Critics say high-risk, high-cost loans to minorities – commonly described by nonprofit agencies as "predatory lending" – and other subprime borrowers during the property boom were a major factor in causing the current meltdown in the U.S. housing sector.
These clippings are provided for "fair use" not-for-profit,
educational purposes (and other related purposes). If you wish to use
this copyrighted material for purposes of your own that go beyond "fair
use," you must obtain permission from the copyright owner. Please
contact Woodstock Institute for more information.