A newly released report is saying that mortgage lending disparities against Hispanics, blacks and other minorities in the Minneapolis-St. Paul area occurred even among the high-income earners, and apparently played a role in the area's ongoing subprime mortgage crisis.
Among other things, the study, released this week by the Institute on Race and Poverty at the University of Minnesota's Law School, shows that Hispanics, blacks and Asians were more likely than whites to endure loan-application rejections – and more likely to receive predatory subprime loans -- regardless of their income.
Most strikingly, the report, which examined nearly every single loan application processed in the Twin Cities from 2004 to 2006, found that the requests for purchases and refinances from high-income minorities were denied more frequently than those from low-income whites.
For instance, the rejection rate on loan applications of Hispanic families earning between $117,000 and $157,000 yearly topped 11 percent. The denial rate for white families earning between $39,000 and $63,000 was less than 8 percent.
The disparity was even more pronounced among blacks. The denial rate for blacks in the $157,000 income bracket was 25 percent, versus about 8 percent among whites earning up to $63,000.
"This crisis has cost another generation of people of color the equal opportunity to join America's middle class," said Myron Orfield, Executive Director of the Institute on Race & Poverty, in a statement. "Strong steps need to be taken to ensure equal access to credit and the promise of homeownership for people of color."
The study also concluded that banks appeared to apply different standards to different neighborhoods. For instance, those living in diverse neighborhoods were less likely to get a good loan -- known as a prime loan -- and more likely to receive a famously problematic subprime loan than people living in mostly white neighborhoods.
"Even whites are less likely to get a loan in segregated neighborhoods than in a white neighborhood," research fellow Eric Myott told HispanicBusiness.com. "As neighborhoods became whiter, all groups saw an improvement."
The most frequent distributor of sub-prime loans in the Twin Cities during that time frame was Argent Mortgage Co., whose parent company is ACC Capital, Myott said. Runner up for the dubious distinction went to BNC Mortgage, also known as Lehman Brothers, he said.
The study strongly implied that the lending disparities had a bearing on how foreclosures later ravaged certain Minneapolis neighborhoods.
"Subprime lending disparities for communities of color became foreclosure disparities," the summary said. "Both subprime lending rates and foreclosure rates have been highest in neighborhoods with the highest percentages of people of color."
The study's summary struck a stern tone when broaching the topic of discriminatory mortgages.
"While subprime lending is usually legal, racial discrimination in lending is not," it says, adding that laws such as the Fair Housing Act are meant to guard against such practices. However, the researchers went on to note that the federal government failed to aggressively pursue lending discrimination during the subprime boom.
"This lack of effective enforcement of fair lending laws meant that discriminatory or predatory lending behavior faced little threat of punishment," said research fellow Geneva Finn in a statement.
However, Myott stopped short of saying he knew for certain that the banks engaged in discriminatory lending. This, he said, is partly because the researchers do not have access to the credit information of the banks' customers. Banks, he added, refuse to relinquish them.
The researchers began the study about a year and-a-half ago, and used the data provided by banks in accordance with the Home Mortgage Disclosure Act (HMDA). The 1975 law was passed to protect against discriminatory lending practices.
Paul Schuster, vice president of Marketplace Home Mortgage and president of the Minnesota Mortgage Association, told the Minneapolis Star Tribune
that the information collected by the HMDA fails to capture the true complexity of the mortgage business.
"There are many factors that go into a loan and a loan decision," Schuster told the paper. "And the HMDA doesn't tell the whole story."
In any case, the report recommends a multi-faceted approach to mortgage lending disparities.
"The mortgage market needs to be carefully monitored for unfair disparities and fair lending laws need to be enforced," said Orfield. "In order to do that, we need to expand and aggressively enforce the Community Reinvestment Act, establish a fair housing center in the Twin Cities to monitor all segments of the housing market, and the scope of the HMDA data set needs to be expanded. Finally, federal enforcement of Fair Lending laws needs to resume in an aggressive manner."
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