Race a Factor in Your Interest Rates and the Elevation of Foreclosures?

Real Estate Agent with Exit Realty United

 I read an article today that made my face literally hit the floor. 

Mortgage data links higher-priced loans with delinquencies
Racial disparities persist in analysis of loan denials and rates
Thursday, September 13, 2007
By Matt Carter
Inman News

 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.


Comments (7)

Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team

Interesting subject.  I have been a mobile notary during these years of the adjusted/arms/ neg/ options. And I can tell you that here in California -- I've seen all sectors get those loans.  I think it is more correct to state that there were a number of loan officers/lenders that just did not explain the outcome of the loans to their clients -- at least not correctly.  They left it up to the notary to just get it signed.  Sometimes they would not even be able by phone to explain questions that the borrowers had.  Of course, the notary is not supposed to say anything negative about the loan or the loan company or anything, but there were alot of that going on.

I ran into all sectors that did not seem to know what kind of loan, just wanted it to hurry up and close -- just like the loan officer wanted.  So its hard to confirm that these loans was made up to reach only a certain race or sector, I think they were designed to reach whomever fell for them!

I have heard that blacks would not have been able to buy homes without those type loans, but I think that stands true to a hugh number of people of all sectors.

My heart goes out to them all.  It is worst that an epidemic -- and its funny but the "plans" to help seem to be pointed to help the mid to high class, but maybe that is just my thinking. *&^%$##@

Sep 13, 2007 12:17 PM
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate
Toni, I hate to hear and read information on issues like this. What a shame, thank God you were able to save your family member. Not a fun post to read but good information.
Sep 13, 2007 12:18 PM
Frances C. Rokicki
Fran Rokicki Realty, LLC - Bolton, CT
Good for you that you saved your family member!  You're correct, they call us when they are in over their heads, thank God it worked out well. In the last seven years, too many agents, too many bankers.  It was and easy job.   No longer;)
Sep 13, 2007 12:36 PM
Sharon "Toni" Brown
Exit Realty United - South Ozone Park, NY
South Ozone Park - New York City Real Estate

Rosemary, I know that everyone was getting screwed, but it is from my perspective that people are never screwed equally.  It would like saying there is no discrimination in real estate.  Look how women are treated in business to this very day.  We wouldn't have all the legislation we do if that was not true and that still doesn't stop it from happening.  After reading this article I just couldn't stay quiet about it.

Missy, I know this is a touchy subject but it's the ugly truth.  It is really sad when I met potential buyers pre-qualified with these high-interest rate loans with great credit and only thought they were getting a good deal because they shopped around and were quoted even higher rates.  Case in point that 4 point difference in loans.  That company just closed their doors this summer thankfully.   

Here, here Frances 

Sep 13, 2007 12:44 PM
Kathy McGraw
CELLing Realty - White Water, CA
Riverside County CA Real Estate

Toni B.-

And Fair Housing rules were where ????? I remember when  I was in school, my degree was Administration of Justice, and one of our textbooks was "The rich get richer, and The Poor get Prison."  It was about the legal system, and how many minorities, and poor people got s.........by the Justice System.

Lenders, and many many other groups in our society still do this....and in certain areas of the country everyone knows they do, and nothing changes.......Education is the only long term answer.  As they say, knowledge is power.......

Good for you for writing this......of course you know that there will be a lot of denial, "not me's...." but hopefully someone, somewhere will fix it !!!!

Sep 13, 2007 02:43 PM
Sharon "Toni" Brown
Exit Realty United - South Ozone Park, NY
South Ozone Park - New York City Real Estate

Thank You Kathy for your comment - It is so true it makes me disstraught.  The scarce amount of banks in certain areas show their unwillingness to work with certain people.  In my neighborhood that is full of middle class professionals and a big increase in commerce we still only have one bank.  This is NYC, not  a small town one horse town.  I know that many states don't use attorneys to negotiate contracts and believe it or not that is scary to me.  Having a Notary who can't advise me of my rights push me to sign.  I sign NOTHING without an attorney.  While negotiating a deal in Nevada the other parties were miffed that I was faxing the contract to an attorney for review before signing off.  There was a new more equitable contract sent to my hotel the next morning. The terms were changed drastically after I INSISTED that I would not sign anything without review.  WHAT WAS WRONG WITH THE FIRST CONTRACT?  I was so ready to bale before I was advised that it was a normal practice there. Where are the neutral parties that have no financial interest in the deal.

Certain practices will never change until people's attitude's do.  As Rosemary stated their were people of all kinds getting the shaft.  You stated it correctly "And Fair Housing rules were where ?????  quite frankly I couldn't take any part in a deal that was bound to end in disaster for someone. 

I can't stand to see anyone treated unfairly and that will probably get me killed one day, as I always have a need to say something about it.  At least I will die with my conscious and integrity intact. 

I think people are just looking at this post not knowing what to say.

Sep 13, 2007 05:11 PM
Christopher Walker
Mission Grove Realty Inc. - Hemet, CA
Local Broker and Realtor - Hemet & San Jacinto, CA

Toni: A subject that deserves attention. Some are quick to jump at the conclusion that it is a mortgage lender of another race than the applicant who is acting in hate or "taking advantage" of a "minority". For me, people are people.

What I have seen, first hand, on MANY occasions is people of a certain "race", "ethnicity" or "religious background" allowing their "friend" the mortgage broker to fleece them. Their "friend" is always someone of the same "background" and they have placed 100% faith in them. I have seen this on MANY occasions. I doubt that I am alone. I have advised clients that the loan they are planning on utilizing, at the urging of their "friend", is not in their best interests and have lost a few clients as a result (The ones that I lost have subsequently lost their homes). Although I feel sorry for those that have places so much faith in their "friend" the lender, I am disgusted at the lengths some will go to in placing blame on someone else.

Race, religion or ethnicity, in my opinion, has little to do with what what mortgage rate they will receive. It is the people within the community that act as "friend and protector" that continue to fleece their own "people". They utilize their common race. ethnicity and or religion to gain common ground and then use that power to do irreparable harm to build their own personal wealth. All without regard to the people that have placed faith in them.

This practice is disgusting, deplorable and continues to be unchecked. Those that have been fleeced are so brainwashed that they believe someone other than themselves or their "friend" the lender were responsible for their loan. I do believe that those in the "minority" have paid higher rates, paid more for homes and been fleeced....by their own "people".

Can we still do dinner in New York?

Oct 05, 2007 04:19 PM