Monday, May 29, 2006

Storm illustrates differences in how minorities, whites are treated by banks

Minorities in Banking
Katrina brings financial disparities into focus
WASHINGTON - Hurricane Katrina has brought into focus the financial plight of many blacks along the Gulf Coast as well as illustrating the differences in how minorities and whites use and are treated by banks. Around the country, many low-income minorities shun banks, have never used an ATM machine or applied for a home mortgage. Often, they turn to storefront payday lenders, which charge high interest. At all income levels, blacks are far more likely to be given high-cost, “sub prime” mortgages than whites, according to a Federal Reserve analysis of home lending data. See: In a related development, two key Republican lawmakers announced they had drafted a legislative change that would require some of the profits of mortgage giants Fannie Mae and Freddie Mac to go to financing housing for low-income people in areas hit by Katrina as well as in those where survivors now live. The proposal by Reps. Michael Oxley, R-Ohio, and Richard Baker, R-La., was being included in legislation before the House to tighten government oversight of the two companies, which together finance more than three-quarters of the home mortgages in the country. Hillary Shelton Director of the Washington bureau for the NAACP, said the civil rights group also is concerned about predatory lenders who “must be circling some of the worst-hit areas, salivating at the potential for abuse” of Katrina’s victims. Predatory lending occurs, for example, when lenders pressure homeowners into high-interest loans to refinance mortgages, home equity loans or home repair loans that the borrowers may not be able to repay. The loans, while legal, have drawn widespread criticism. Like the Federal Reserve report, studies in recent years have shown that a much larger share of black and Hispanic homeowners pays higher interest on their mortgages than do whites in similar circumstances. The studies have found that disproportionate numbers of blacks and Hispanics have sub prime mortgages, which are high-interest loans to homeowners deemed riskier because of tarnished credit histories or other factors. Such home loans are said to be concentrated in minority communities at far higher levels than in white neighborhoods. See: The Fed report released Tuesday reviewed home lending data for 2004. It found that about 32 percent of blacks and 20 percent of Hispanics got high-interest loans, compared with 9 percent of non-Hispanic whites. After adjusting for differences in income and location of homes, it found that blacks are nearly twice as likely as whites to get more expensive mortgages.


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