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Financial illiteracy and racism threaten African American and Native American Borrowers

by Monica Davis (davis4000_2000 [at] yahoo.com)
Despite decades of civil rights laws and federal anti-discriminating lending statutes, blacks and Native American loan applicants still get the short end of the stick in the lending process.
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Native American and black home owners, renters and property owners are taking a massive hit in the latest economic turmoil in the housing and banking industry. Already vulnerable, targeted by predatory lenders, regardless of their income and credit history, many people of color are now finding themselves in an economic catastrophe, often due to a combination of financial illiteracy and a desire to have their own piece of the American dream—a home of their own.

Unfortunately, many dreams are becoming nightmares. Renters are being disposed by foreclosure agents after their landlords failed to pay the mortgage. Families are thrown out into the street after failing to pay their mortgages—and still have to find a place to sleep. And those who are left in the neighborhoods watch their property values decline as entire neighborhoods become ghettos of foreclosed homes, prime fodder for vandals and vagrants.

For all of the progress that has been made—real or imagined, the fact remains that minority borrowers are more likely to be saddled with and stung by over-priced loans than are whites with comparable incomes and credit histories.

According to research by a nationwide advocacy group;
upper-income blacks were 3.3 times, and Latinos 3 times, more likely than upper-income whites to have a high-cost loan when purchasing a home in 2006. (ACORN)

A federal reserve analysis echoed some of ACORN’s findings, with this report:
In September, the Federal Reserve released a study that found 52.8 percent of African-Americans got a high-cost home loan when they refinanced in 2006, compared to 37.7 percent of Latinos and just 25.7 percent of whites in the same year. (Federal Reserve)

In a press release, another activist made an acute observation of who is really getting bailed out of the “mortgage crisis”.

Wade Henderson, President and CEO of the Leadership Conference on Civil Rights, said, "Every day we hear about industry bail-outs from the foreclosure crisis they created, but homeowners trying to save the roofs over their heads have very limited options for getting help and industry does not seem interested in taking meaningful steps that would make a real difference. The Institute was created to help borrowers today who can't wait for tomorrow to try to save their homes. This initiative is an important step in the right direction to help provide effective legal assistance to those who desperately need it." (Press Release)


The following excerpt from a report generated by the think tank American Progress shows just what the disparities are in areas with high concentrations of Native Americans and African Americans:

Does Lending Discriminate?
1/2: The proportion of rural counties with significant rates of high-cost loans—30 percent or more—with minority populations of 33 percent or more. Most of these are counties across the Mississippi Delta region with Native American reservations and poor Hispanic American communities.
3: Factor by which black and Hispanic borrowers are more likely to receive subprime loans than white borrowers, even when ac counting for credit score.
70: Percent of black Americans in places such as Boston earning between $92,000 and $152,000 who received high-interest rate loans in 2005. By comparison, just 17 percent of whites living in the same areas received such loans. (Source: Subprime Mortgage Foreclosures by the Numbers, March 26, 2007)

We know the problem: minority buyers were herded into subprime or risky loans, many of which were adjustable rate mortgages (ARMs) with floating interest rates. We know the problem, now: what is the solution?

Nobody really knows because the crisis is still unfolding—in fact, the leading edge has just begun. The real problem will hit in a little more than a year, when the interest rates on more than two million mortgages resets. Nevertheless, one mortgage industry analyst says the mortgage industry has been forever changed and the changes that he foresees do not bode well for Native American or other so-called ‘minority’ home ownership.

"Foreclosures on manufactured home loans are a real problem in Indian Country," HAC's Loza stated. "For example, in Shannon County, South Dakota on the Pine Ridge reservation, nearly 73 percent of loan applications were denied in 1999, and almost 78 percent of the loans that were issued were made by subprime or mobile home lenders. Some of these loans are made on such onerous terms that the families can't keep up their payments, and in the end they may lose their homes." (Ruralhome.org)

A major problem in ethnic communities is the lack of sophistication and education in consumer finance. Financial illiteracy is high among African American and Native American communities, making both communities extremely vulnerable to predatory, unscrupulous and illegal loan practices. That is particularly true of individuals living on many of the nation’s Native American Reservations, which are home to some of the nation’s poorest and most vulnerable citizens.

The general economic vulnerability of the Pine Ridge reservation population is increased by the unscrupulous actions of some private lending institutions operating in Shannon County. Local development experts, housing practitioners and credit counselors agree that aspiring homeowners on the reservation are often exposed to predatory lending practices in the mobile home market and elsewhere. Low-income families on Pine Ridge find the prospect of buying manufactured homes attractive because of these homes' relatively low cost, the simpler legal and administrative procedures associated with the purchase and the obvious absence of lengthy construction periods. However, uninformed tribal borrowers often unwittingly commit themselves to unfeasible loan repayment schedules because some subprime lenders extend credit to them for which they would not - and should not - be eligible in the mainstream or prime market. (Press Release, “Predatory Lending in Shannon County/Pine Ridge Reservation, South Dakota,” Housing Assistance Council)

The chief executive of Countrywide financial Corp, Angelo Mozil, in a speech before a group of real estate professionals in Los Angeles said that the industry is roiling and the panic is generating fear among lenders “who are increasingly less likely to lend to risky borrowers.” (Reuters)

Gaps in home ownership rates between minorities and whites will increase because of a change in the U.S. mortgage industry, caused by a credit panic, the chief executive of Countrywide Financial Corp (CFC.N: Quote, Profile, Research), the largest U.S. mortgage lender, said on Thursday. (Ibid)

Even before the mortgage meltdown, there were problems in the American mortgage industry, with discrimination against black, Native American and Hispanic borrowers heading up the list. Several class actions over the years targeted banks, financial institutions and mortgage companies including this one against Morgan Stanley:
The National Community Reinvestment Coalition (NCRC), a “fair lending” organisation in the United States, has filed a lawsuit in Washington against the bank claiming that it has deliberately failed to offer credit facilities to “African-American, Latino, Native American, Asian and Pacific Islander communities” solely on the ground of race. (Times Online 9-25-07)

A senior official with the National Community Reinvestment Corporation says he has evidence of so-called redlining:
David Berenbaum, executive vice-president of the NCRC, told The Times that he had “smoking gun” evidence in the form of Morgan Stanley’s lending manual. It allegedly stated that the bank had operated a policy where it “didn’t even get to the point of looking at credit histories”. (9-25-07)

Bottom line, then, is that for many minority borrowers, credit history was not an issue. It was where you bought your home that counted. And so it is that people who choose to live in ethnic communities, on the Rez, in the ‘Hood, or elsewhere are viewed through a jaundiced eye by many mortgage bankers, something which is highly illegal, but not uncommon in some institutions.
Where you live and who you are: those are the determining factors, particularly if you are Native American. In one analysis, blacks and Native Americans are almost tied in the frequency of loan denials in Minnesota.


According to statistics presented on former presidential candidate Bill Richardson’s home page:
Applicants who identified themselves as American Indian or Alaska natives were denied by financial institutions 33 percent of the time in North Dakota and the Fargo-Moorhead metropolitan area – a higher denial rate than for any other race or ethnicity.
Non-Hispanic whites were denied 14.1 percent of the time in North Dakota and 13.4 percent of the time in the F-M metro area.
- Applications by blacks were denied most often in Minnesota, at 28.3 percent, followed by American Indians at 27.4 percent.
- The percentage of so-called “higher-priced loans” issued by lenders was greater among racial minorities than among whites in both states, with the exception of Asians in North Dakota.
The data for North Dakota and Minnesota is mostly consistent with what the Federal Reserve Board’s division of research and statistics found in its analysis of the nationwide 2006 HMDA data: that American Indians, blacks and Hispanic whites had higher denial rates than non-Hispanic whites, with blacks having the highest rate. (http://www.changeandexperience.com)

Now, what have we learned here? We’ve learned that black, Native American and Hispanic borrowers are herded to higher interest, predatory loans. We’ve learned that lenders still balk at lending in some areas. And, we have learned that people of color still are denied loans at a higher rate than are white borrowers.

Bottom line, even before the so-called foreclosure crisis began making headlines, Native Americans and other ethnic groups were already being denied loans based on their ethnicity and where they chose to live, despite the illegality of those denials. And, in the off chance that they were “approved” for a loan, they were often herded to higher interest, even predatory loan products.
So, what do you think is going to happen when people who are already last hired, first fired find themselves laid off in from the housing industry, automotive industry and, yes, even the banking industry?

When the Native American men who work in construction can’t find work because of the housing slump, when black men are laid off from factories and mid-level management positions, when black, Hispanic and Native American women lose teaching jobs as school districts retrench due to decreased revenue from property taxes?

What happens when people lose jobs with health insurance and then have to chose between purchasing food, paying a bill, or filling a prescription? Research has already shown that health is a major factor in employability:
Health disparities based on racial and ethnic identity account for a significant portion of the differences in employment rates between certain minorities and whites. However, once people are employed, those disparities have minimal effect on income, according to a study published in the September issue of the Milbank Quarterly (Aaron Levin, ‘Health Disparities between racial groups affect joblessness 9-30-03)

Lending irregularities affect minority borrowers to the tune of billions of dollars. Money that could be spend on food, healthcare and assisting one’s family, or community is instead devoured by rapacious loans, the type of which often have little to do with the borrower’s ability to repay.

As far as minority borrowers are concerned, they were well screwed long before anybody ever heard of the so-called foreclosure crisis. Because of discriminatory, illegal and biased loan practices Blacks and Indians have been “in crisis” for generations.

Many of the people who are losing their homes in our communities are losing them not because they were greedy and bought too much house, not because they couldn’t afford the home they purchased. Thousands are losing their homes because parasites in the housing and lending industry led them to the slaughter and then made billions while doing so, and some government programs may keep the assembly line going.

There are a lot of people out there seeking to make a profit and exploit the already exploited. One group is revving up to market foreclosed properties to more black, Hispanic, and Native American families.

Ain’t that a hoot? Millions of victims of loan fraud, disclosure fraud, and document deception are going to be kicked out of their homes to make room for more “minority home owners.”

The circle of theft, deception, deprivation and deceit just turns and turns. And it just gets better for the predatory loan and mortgage loan industry. Even by the odd chance that a homeowner could find a non-predatory or non subprime loan, there’s a prepayment catch, as many borrowers have discovered.

About 70 percent of subprime loans have costly prepayment penalties that trap borrowers in high-cost mortgages, mortgages that strip wealth rather than build it, and these penalties keep borrowers from shopping for a better deal,” Senator Dodd said in a hearing of the Senate Banking Committee early this year. When interest rates were high in the 1970s, states took steps to protect consumers from onerous prepayment penalties. Such fees generally disappeared from standard loans. In the late 1990s, though, subprime loans to people with weak credit blossomed, and with those loans came a resurgence in prepayment penalties. (New York Times, 9-13-07)

Author: Monica Davis
Author website: http://www.lulu.com/davis4000_2000
Researcher: Stephanie Schwartz, NAJA
Website: http://www.silvrdrach.homestead.com/


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