Risk Or Race?
May 2, 2002
Study Alleges ?Factors Other Than Risk? At Work In Subprime Lending
Inman News Features
A new study, "Risk or Race," has aimed yet another stake at the heart of subprime lending by using government-collected data to show the marketplace for these high-cost loans is characterized by racial bias against African-Americans and Hispanics.
The primary findings of the study are that African-Americans and Hispanics are disproportionately represented in the subprime home refinance mortgage market, that significant disparities exist between whites and other groups and that those disparities are greater for borrowers at higher income levels. The study found "consistent and pervasive racial disparities and concentration of subprime lending in communities of color and to borrowers of color at all income levels."
The study was authored by the Washington, D.C.-based Center for Community Change, which aims to help low-income people build organizations and public policies for the betterment of their communities. The findings were based on an analysis of 2000 data from the Federal Home Mortgage Disclosure Act?data that is self-reported by lending institutions and that some have charged is not wholly reliable.
The study authors said the findings don?t "constitute conclusive proof that there is widespread discrimination in the subprime lending markets," but rather "raise serious questions about the extent to which risk along could account for such patterns."
The authors concede that subprime lending "may provide certain borrowers with access to credit they could not otherwise obtain in the prime market." But they argue that wide disparities suggest that "factors other than risk may be at work" and raise "important public policy concerns about possible adverse implications stemming from these heavy geographic concentrations."
The study ranked 331 metropolitan areas in the nation based on differences in subprime lending among whites, blacks and other minorities who obtained single-family conventional refinance home loans.
Seventeen metropolitan areas were cited as having levels of subprime lending that were more than 150 percent of the national norm. Fourteen of those were in the Southeast or Southwest and 7 were in Texas. The highest overall level of subprime loans in the nation was found in El Paso.
Twelve of the 17 areas had fewer than 500,000 people and four had more than 1 million people. But the highest disparities in the proportion of subprime loans made to minorities were in cities with fewer than 250,000 people, the study found.
The disparities noted were found in all regions of the country and cities of all sizes.
The percentage of subprime loans made to African-American borrowers was higher than the national norm of 25 percent in every metropolitan area that met a threshold of at least 100 such loans. Buffalo, N.Y., had the highest proportion of subprime loans to African-Americans while the highest disparity ratios were found in Kankakee, Ill., Albany, Ga., and Dothan, Ala. Chicago, Milwaukee and Philadelphia had the highest disparity ratios in predominantly African-American U.S. Census tracts.
El Paso and San Antonio, Texas, had the highest proportions of subprime loans to Hispanics while the highest disparity ratios for this group were found in San Jose, Calif. and 14 other areas. Albuquerque, N.M., had the highest disparity ratios in predominantly Hispanic U.S. Census tracts.
Copyright: Inman News Service