Black and Low-Income Homeowners Might be Prey for Predatory Lenders in Subprime Market

“Federal Housing Secretary Andrew Cuomo has released a study showing the number of subprime home loans is skyrocketing in predominantly black neighborhoods and low-income neighborhoods.While expanded access to credit is critical to these populations, a study suggests there is growing evidence that some lenders may be engaged in predatory lending that is making homeownership far more costly for blacks and poor families than for whites and middle-class families.Cuomo released the study Unequal Burden: Income and Racial Disparities in Subprime Lending in America at the start of the meeting of a new Predatory Lending Task Force. Cuomo also announced that Treasury Secretary Lawrence H. Summers will join him as co-chair of the Task Force.Key findings of the Department of Housing and Urban Development analysis show that:- From 1993 to 1998, the number of subprime refinancing loans increased ten-fold.- Subprime loans are three times more likely in low income neighborhoods than in high-income neighborhoods.- Subprime loans are five times more likely in black neighborhoods than in white neighborhoods.- Homeowners in high-income black areas are twice as likely as homeowners in low-income white areas to have subprime loans.This study documents shocking disparities, showing that too many African American and poor working families have subprime home loans, which may raise their costs of homeownership, Cuomo said. This raises concerns of widespread consumer fraud by predatory lenders. HUD and Treasury are now examining these issues and will report on this growing problem.Greater access to capital, especially for those who traditionally have not had access to capital, is crucial for American families and the American economy, Summers said. But it is essential that credit be provided in a transparent and non-exploitative way. That is why we will work on this Task Force to find ways of maximizing credit access while avoiding predatory lending. The HUD study focused primarily on home refinancing loans, which account for 80 percent of subprime loans.Subprime lending involves providing credit to borrowers with past credit problems, who cannot qualify for the conventional prime market.Subprime lending can include predatory lending, which hits homebuyers with excessive mortgage fees, interest rates, penalties and pre-paid credit life insurance charges that can raise the cost of homebuying by thousands of dollars.The HUD and Treasury Predatory Lending Task Force will:- Assess the relationship between the availability of prime loans and the growth of subprime lending in different types of neighborhoods, including low-income and minority neighborhoods.- Review existing state and local initiative to curb subprime lending and assess the merits of alternative strategies, including federal initiatives, to end predatory lending.”