The California Reinvestment Coalition (CRC) today released a new report finding that people of color, communities of color and rural towns are more likely to receive higher-cost home loans, and that people of color in California could be paying $50 million more than white borrowers every month as a result of higher-cost home loans.
"What you look like and where you live should not determine how much you pay for a loan," said Kevin Stein, associate director of CRC. "Higher-cost lenders are draining wealth from families' pocketbooks and doing so in a way that is having a large and disproportionate impact on certain California communities."
The report documents a high-priced credit system for minority households in 12 California cities: Delano, El Centro, Fresno, Los Angeles, Modesto, Oakland, Oxnard, Sacramento, San Diego, San Francisco, Salinas and Yuba City.
The CRC report, "Who Really Gets Higher-Cost Home Loans?" identifies six key trends:
* The cost to borrowers of higher-priced lending is great. The average
higher-cost home loan borrower in California paid approximately $691.76
more per month on his or her home loan than a borrower who received a
similar loan but at the going, lower-cost prime rate.
* Large banking companies are charging higher rates to people of color.
There were 264,348 higher-cost loans made in California in 2004. Many of
these higher-cost loans were made by the largest financial companies in
the world: General Electric, Countrywide, Lehman Brothers, Washington
Mutual, H&R Block and Bank of America. And Citigroup, HSBC and Wells
Fargo each made hundreds of loans with Annual Percentage Rates of
13 percent or higher, at a time when most loans came with interest rates
of 5.84 percent.
* People and neighborhoods of color are two to four times as likely to get
higher-cost loans. Residents of minority neighborhoods were nearly four
times as likely as those in white neighborhoods to get a higher-cost
home purchase loan.
* Rural communities are greatly impacted by higher-cost lending. Delano
saw 25 percent of its home loan borrowers receive higher-cost loans. El
Centro, Fresno, Modesto and Yuba City had the next highest incidence of
higher-cost lending.
Lee Pliscou, directing attorney of California Rural Legal Assistance, Inc, Marysville, said, "People in rural communities do not have access to the same kinds of financial services that are available in urban areas. This data, by itself, is very valuable for consumers to help choose a lender. And for rural residents, who might not have much of a choice, the data can suggest taking a close look at loan papers before signing."
* Regulatory agencies need to do more. Regulatory agencies must exercise
their full authority to investigate illegal lending practices and
enforce fair lending laws. Lending by national banks regulated by the
Office of the Comptroller of the Currency (OCC) displayed the greatest
disparities. National banks were 4.15 times as likely to make
higher-cost refinance loans to African Americans as they were to white
borrowers.
Heidi Li, Co-Director of Housing and Economic Rights Advocates (HERA), a statewide not-for-profit housing rights and consumer protection legal organization asserts, "A critical need exists now for both federal and state regulators to step up and investigate with greater scrutiny the financial and lending institutions they are entrusted with overseeing and monitoring. It is very disturbing when the analysis of lending patterns of high-cost loans to whites vs. African-Americans or Latinos in major California metropolitan areas such as Oakland shows such an obvious disparity."
* Fringe financial providers are crowding out mainstream banks in local
communities. In addition to being overrun by higher-cost mortgage
lenders, low-income communities, communities of color and rural
neighborhoods are being inundated by high-cost check cashers and payday
lenders. In eight of the 12 cities studied, check-cashers equaled or
outnumbered bank branches. In Oxnard, 56 check cashing outlets dwarf 21
bank branches.
San Francisco Supervisor Tom Ammiano said, "High cost home lending, check cashing and payday lending are much more prevalent in diverse, working class neighborhoods like the Mission District in San Francisco. Banks need to do a better job of offering low cost mortgages and other financial products to underserved communities."
"California consumers are targeted and become vulnerable borrowers. Home ownership is the most critical decision one makes. Educating the public is the ultimate goal of the Monterey County Housing Alliance (MoCHA)," said Maria Giuriato, MoCHA Chair.
Based on federal Home Mortgage Disclosure Act (HMDA) data, the report is the twelfth in an annual series of CRC investigations into how California's banks and mortgage companies serve the needs of our state's diverse communities. The report includes detailed lending performance data for each city, and will be available from CRC at (415) 864-3980, or at http://www.calreinvest.org.
The California Reinvestment Coalition is a non-profit membership organization of more than 200 nonprofit organizations and public agencies across the state of California. CRC works with community-based organizations to promote the economic revitalization of California's low-income communities and communities of color. CRC promotes increased access to credit for affordable housing and community economic development, and to financial services for these communities.