I read an article today that made my face literally hit the floor.
It stated the obvious that " A new Federal Reserve Board analysis of millions of home loans made in 2006 shows a correlation between higher-priced loans that carry heftier interest rates and the rate of serious delinquencies." NO KIDDING!
I didn't want to disclose this but I had a family member that was approved for a mortgage refi In 2006 whose payment was 60% of her gross income. She was counting on a second job that she didn't have at the time, the kindness of friends and family and overtime to cover the rest of her expenses. She had another family member accompany her to the closing (Thank God) and after the closing the family member called me crying. " They are trying to steal her house!, come over quick! She can't afford her new mortgage, She won't listen!" It took me five hours to crunch the numbers with her, before she faxed in a refusal. I then found her a professional that not only gave her a loan at 4 ENTIRE POINTS lower than the previous one (imagine the rate) But brought her payments down over $300 after paying off a couple of bills and taking some out for home improvement. Family always wait til things go bad to give you their business. That is another story.
It is no secret that there were many people given loans for mortgages that they were financially unable to carry. So this revelation by the Fed was no surprise to me.
They gathered information from 8,886 lending institutions, which included 2,036 credit unions, 2,004 mortgage companies, 946 savings institutions and 3,900 commercial banks. Together these institutions reported information on 6.2 million loans they purchased from other institutions and made 14 million mortgage loans.
The Federal Government created the Home Mortgage Disclosure Act which mandated the collection of data from these institutions.
The part of the article that had me dusting off my face was the part that Blacks and Hispanics were more likely to get stuck with a higher-cost loan. Ever been to a closing where people try to pay themselves twice? They've tried it with me as a buyer and two others that I know of. It makes me wonder how many others they were getting away with this practice with. They were not oversights, just attempted larceny. So I was not suprised at this finding either.
The article stated that "Blacks got higher-cost loans 53.7 percent of the time and Hispanics 46.6 percent of the time in 2006, compared with 17.7 percent of the time for whites. Asians were the least likely of any racial or ethnic group to take out higher-priced loans, at 16.8 percent of the time." They however were not able to definitively determine that these disparities in lending practices were due to discrimination, even after putting the differences through a number of variables like, location, income, loan-to-value, debt-to-income ratios and loan product. According to the article "The adjusted denial rate on purchase loans was 21.5 percent for blacks, 17.5 percent for Hispanics and 14.8 percent for Asians, compared with 13.1 percent for whites. After adjusting for borrower- and lender-related factors, the incidence of higher-cost loans was 30.3 percent for blacks, 24 percent for Hispanics, and unchanged for Asians and whites.
Many agencies are using the data collected from the HDMA to investigate alleged abuses. Many studies have found discrimination in lending for minorities. Why hasn't the Federal Reserve conceded to the practice of discrimination and do something about it. The real point is the abusive lending. That is why there is an increase in the amount of consumers suing financial institutions for granting loans that they knew were impossible for the consumer to pay.
What was most interesting is that these practices were found to more or less pronounced depending on geographic location. I am not going to mention these areas so as to not gain unneeded attention from loan professionals here. Wherever these higher-priced lending practices were found to be elevated also had a marked elevation in foreclosures, with a few exceptions. YOU THINK!
But we are all aware of the abuses by some of our fly-by-night colleagues. Many who are now out of business, thanks to Karma and all that.
Articles like these remind me to do the best for consumers and why it's important for me to stay on top of my game. There is no reason for two individuals with similar incomes, savings and credit score should have such a difference in their interest rate. I evaluate mortgage professionals like I would a babysitter, with a microscope. Luckily I have found some great mortgage brokers and loan officers that do the best for EVERYBODY regardless of their skin color.