Minorities rely on subprime loans

By Sue Kirchhoff
USA Today

WASHINGTON — Women, minorities and lower-income borrowers depend on subprime lenders, firms that specialize in higher-cost loans to people with blemished credit records, for a disproportionate share of mortgages and refinance loans.

A new study of the 331 U.S. metropolitan areas using 2003 federal data showed women were more likely to get subprime, rather than prime, loans in every one.

Subprime loans were more prevalent among blacks in 98.5 percent of the metropolitan areas, while Hispanics were more apt to hold a subprime mortgage or refinance loan in almost 89.1 percent, according to the National Community Reinvestment Coalition, a nonprofit focused on lending and community development issues.

Lower-income borrowers also turned to subprime lenders in large numbers, with prime lenders lagging the subprime industry in serving those with incomes 80 percent or less of their area median, in about 86 percent of cities studied. In neighborhoods with a concentration of low-income households, that rose to 98 percent.

An industry expert says differences in lending patterns on their face don't prove discrimination, and could instead show differences in credit worthiness or the fact subprime lenders are reaching hard-to-serve populations. Federal housing data don't outline such financial factors as credit scores and income that are key to lending.

"It's not at all surprising that, at least in many metropolitan areas, you would have high concentrations of African-Americans and Hispanics getting subprime loans. ... African-Americans and Hispanics as a group are more economically disadvantaged," says Wright Andrews, an attorney who represents the Coalition for Fair and Affordable Lending, a group of subprime lenders.

Differences in lending patterns could be stark. In Macon, Ga., prime lenders issued 13.7 percent of loans to blacks, compared with 59.3 percent for subprime lenders. The 25 areas with the greatest difference in lending to blacks were in the South.

In Salinas, Calif., about 58 percent of loans by subprime firms went to Hispanics, compared with 25.5 percent for prime lenders, according to the data collected under the federal Home Mortgage Disclosure Act.

NCRC Vice President for Policy and Research Joshua Silver says one of the more surprising parts of the study was how geographically broad the lending patterns were.

"Disparities were particularly bad in the medium-size metropolitan areas, where there are a lot of African-Americans. For Hispanics, it was the South and the West," Silver says.