Targeting of African Americans For
High Cost Mortgage Grew Worse in 2005, While Fed Downplays Its Own
Findings
Byline: Matthew Lee of Inner City
Press
NEW YORK, September 8 -- The targeting of African Americans for higher
cost mortgage loans grew more pronounced from 2004 to 2005, data
released Friday by the Federal Reserve show.
The disparities between the mortgage industry pricing for African
Americans and whites worsened, even controlling as the industry argues
for the change in overall interest rate environment. However, given that
the Federal Reserve has yet to take any enforcement action on
disparities in lenders' 2004 lending, it is unclear if this new even
more disparate data set for 2005 will end what many consumer advocates
view as the Federal Reserve's laxity in regulation.
The
report issued by the Federal Reserve on Friday waits until its 39th
page to disclose, in the intentionally opaque style of former Fed
chairman Alan Greenspan, that "the fact that both spread-adjusted gaps
are lower than the comparable unadjusted figures suggests that to the
extent that the yield curve changes affected the measurement of racial
and ethnic pricing differences, they widen gaps rather than narrow
them." Translation: even using the industry's main defense, the
yield curse, the disparities grew worse.
The non-governmental organization Fair Finance Watch, which has raised
lending discrimination as a human rights issues, including to United
Nations Habitat director Anna Tibaijuka (pictured below, video of Q&A on
U.S. Community Reinvestment Act and discrimination
here).
Where a nation does not act on known discrimination within its borders,
FFW argues, it violates treaties it has signed.
Mortgage
lenders were required to release their raw Home Mortgage Disclosure Act
data for 2005 on April 1 of this year. 2005 is the second year in which
the data distinguishes which loans are higher cost, over the
federally-defined rate spread of three percent over the yield on
Treasury securities of comparable duration on first lien loans, five
percent on subordinate liens. While the Federal Reserve waited six
months to compile and analyze the data, a study by Inner City Press of
the largest U.S. banks, beginning with Citigroup reached the following
findings:
Citigroup in 2005, in its headquarters Metropolitan Statistical Area of
New York City, confined African Americans to higher-cost loans above
this rate spread over seven times more frequently than whites, worse
than in 2004. Nationwide for conventional, first-lien home purchase
loans, Citigroup denied the applications of African Americans 2.69 times
more frequently than those of whites, and denied the applications of
Latinos 2.02 times more frequently than whites, both disparities worse
even than in 2004. Bank of America in 2005 was more disparate to
Latinos, denying their applications 2.38 times more frequently than
whites, and denying African Americans 2.27 times more frequently than
whites.
Fair Finance Watch designed a way to consider income correlations, by
calculating upper and lower income tranches based on each lenders own
customers. Nationwide at
Citigroup for
conventional first-lien loans, 37.73% of upper income African Americans
were confined to higher cost loans over the rate spread, versus only
11.46% of upper income whites. Income does not explain the disparities
at Citigroup. Nor at HSBC, where less than half of upper income white
borrowers were confined to rate spread loans, versus 61.87% of upper
income African Americans and an even higher percentage of Latinos,
62.82%. HSBC, which bought Household International in 2002 just after
its predatory lending settlement, has increased the interest rates
changed by its former Household units. Over eighty percent of HSBC's
home purchase loans to African Americans and Latinos were higher-cost
loans over the rate spread, much higher than in 2004 at these
ex-Household units. In Buffalo, HSBC's long-time headquarters,
HSBC in 2005
confined African Americans to higher cost rate spread loans 2.15 times
more frequently than whites.
In 2005, HSBC made over five thousand super high-cost loans subject to
the Home Ownership and Equity Protection Act (HOEPA) -- that is, at
least eight percent over comparable Treasury securities.
Wells Fargo made
795 HOEPA loans in 2005. Keycorp, which has said it had discontinued
HOEPA loans, made 755 such loans in 2005.
National
City Corporation's First Franklin made 177,526 higher cost loans over
the rate spread in 2005. Merrill Lynch has recently announced a proposal
to acquire First Franklin, in order to be able to pool and sell its
higher cost loans on Wall Street.
Considering all conventional first-lien loans, among the most disparate
was Washington Mutual and its higher-cost affiliate, Long Beach Mortgage
-- together they confined African Americans to rate spread loans 3.70
times more frequently than whites. Wells Fargo was nearly as disparate,
confining African Americans to rate spread loans 3.31 times more
frequently than whites. Royal Bank of Scotland and its Citizens Bank
units came in at 3.11, and JP Morgan Chase at 2.98. The disparity at
Wachovia was 2.58, and at Atlanta-based SunTrust it was 2.40. The
disparity at GMAC, a stake in which Citigroup and others are seeking to
buy, was 2.92, while at Countrywide it was 2.86.
Countrywide's disparity between pricing to African Americans and whites
was even worse when considering conventional first lien home purchase
loans: Countrywide confined African Americans to rate spread loans 3.53
times more frequently than whites. Countrywide was topped, however, by
Milwaukee-based M&I, with a disparity of 3.78, and by
Bank of America's
MBNA unit, with a disparity of 4.23.
Bank of America also enabled other subprime lenders in 2005 by
securitizing loans through its generically-named Asset-Backed Funding
Corporation unit for, among others, Ameriquest, which earlier this year
settled predatory lending charges with state attorneys general for $325
million. The settlement only required reforms at Ameriquest Mortgage and
two affiliates, but not its largest affiliate, Argent Mortgage. The 2005
data show that Argent made 220,069 higher cost loans over the rate
spread, while
Ameriquest Mortgage made 122,868 such loans. The reforms announced
in support of the predatory lending settlement with the attorneys
general cover barely 35% of ACC's high-cost lending.
Like ACC / Ameriquest, Citigroup and HSBC, other large subprime lenders
also increased the percentage of their loans that were over the rate
spread, from 2004 to 2005. At New Century in 2005, fully 215,579 of the
company's 268,101 loans were over the rate spread. Countrywide in 2005
made 190,621 loans over the rate spread. 199,249 of 237,700 loans were
over the rate spread at H&R Block, which also in this season offers
problematic high-cost tax refund anticipation loans. Further on fringe
finance, the study notes that Citigroup helped Dollar Financial to go
public, and since continued to lend to and assist this pawn and payday
lender.
The nation's largest bank, Citigroup, was disparate in Metropolitan
Statistical Areas all over the country in 2005. In Los Angeles,
Citigroup confined African Americans to higher cost rate spread loans
2.13 times more frequently than whites; its disparity for Latinos was
2.02. Citigroup's African American to white disparity was 2.27 in the
Washington DC MSA, and 2.72 in Chicago. In Philadelphia, Citigroup
confined African Americans to higher cost rate spread loans 3.43 times
more frequently than whites; its disparity for Latinos was 2.50.
Another of the top four banks which enables predatory lenders is North
Carolina-based
Wachovia, whose pending application to merge with Golden West has
been protested on mortgage discrimination and other grounds. Most
recently, the U.S. District Court for the Southern District of New York
denied a motion by the Federal Reserve Board to get reconsideration of a
decision won by Inner City Press, requiring the disclosure of Wachovia's
connections with a range of subprime lenders, including payday as well
as mortgage lenders. Inner City Press v. Federal Reserve Board,
380 F. Supp. 2d 211. On the Federal Reserve Board's motion, the Court
ruled that:
"The Board made absolutely no
showing in its summary judgment submissions, however, that the
disclosure of data regarding Wachovia’s aggregate exposure and loan
outstandings to the [subprime lending] clients listed in Exhibit 3 would
cause competitive harm to Wachovia or that the public disclosure of this
information would make it difficult for the Board to elicit similar
information in the future... The Board points to portions of a document
entitled 'Subprime Lending and Related Activities' that Wachovia
submitted in the public portion of the Merger Application as a ‘glimpse
into the conclusory statements [regarding due diligence practices]
defendant can expect in future filings’ if merger applicants know such
information is to be released to the public. This argument was not made
in the Board’s original submission. In any event, without more specific
testimony from Wachovia’s representative regarding why Wachovia would
not wish its due diligence practices with regard to its subprime lending
clients to be made public, it cannot be said that this document
represents the limits of what Wachovia would willingly reveal at the
Board’s request."
On
January 5 Inner City Press made a request under the Freedom of
Information Act request to determine what the Federal Reserve had done
on the previous year's data. More than six months later, the Federal
Reserve issued a letter stating that is was withholding five linear feet
of documents, and would only provide a garbled portion of a single
document, described as "a description of the methodology used in
generating the HMDA lenders list." The document states:
"The purpose of the Federal
Reserve's matched-pair analysis is to compute lender-specific racial or
gender disparities in denial rates, high rate pricing incidences and
average APR spreads for loans above the threshold controlling for other
factors including, market, income and loan amount. Each minority (or
female) is matched to as many non-minority (or male) applicants (or
borrowers) as meet the matching criteria. The outcomes of the minority
(female) is compared with the average outcome of the non-minority
(males) matched to it. The difference is the individual minority's
(female's) 'matched pair disparity.' The disparities of all matches
minorities (females) are averaged by product area or for sub areas such
as MSAs...
"Optionally, the matched pair
procedures can be used to test for 'steering' within an organization
such as a holding company. The outcome variable is the selection of a
particular subsidiary of an organization (say a subprime lender) over
another (say a prime lender) and the analysis tests whether this choice
is related to the race of gender controlling for other factors
including, market, income and loan amount. The user needs to specify how
to classify lenders into the 'subprime' and 'prime' groups."
While Inner City Press will have more once it receives the required
mailed version of this document, we now we note Citigroup's recent
announcement that it will merge its subprime CitiFinancial into its
mostly-prime CitiMortgage, thereby evading this "optional" steering
analysis.
There is a need for more information, including the credit score
information that the lending industry opposed being included in Home
Mortgage Disclosure Act data. In fact, some lenders resist providing
even the data required by law, at least in an analyzable form.
Fair Finance Watch is demanding action on all of these issues from the
relevant regulatory agencies, including the Office of Thrift Supervision
(responsible for AIG and Lehman Brothers Bank, among others), the FDIC
(still considering giving a bank charter to Wal-Mart), the Office of the
Comptroller of the Currency (which since suing to New York last year to
block fair lending enforcement has done little to none of its own) and
also the Federal Reserve Board.
Fair Finance Watch responded, "Now that a second year of data is out,
with worsening disparities at the largest bank in the nation and many of
its peers, there is no more time for the Federal Reserve and other
regulatory agencies to equivocate. The time for enforcement actions to
combat this discriminatory and predatory lending is now."
Other samples of related or relevant articles:
Stop Bank Branch Closings and
Monopolies in the Katrina Zone, Group Says, Challenging Regions- AmSouth
Merger
Birmingham,
Alabama, August 20 -- A year after Hurricane Katrina ravaged Louisiana,
Mississippi and Alabama, two of the largest banks in the Katrina Zone
have applied to merge and save $400 million, in part by closing
branches. With the Federal Reserve's comment period on the application
by Regions Financial Corporation to acquire AmSouth running through
September 14, and the two banks' shareholders' votes set for October 3,
consumers and human rights group Fair Finance Watch has filed a fifteen
page protest to the deal, requesting public hearings including on what
it calls the Katrina Zone issues.
The challenge represents the first analysis of the 2005 data of Regions
Financial's Home Mortgage Disclosure Act data-reporting affiliates,
including the subprime specialist Equifirst, cumulating these lenders as
Regions and calculating the distribution of loans over the
Federally-defined rate spread of 3% over comparable Treasury securities
on first lien loans, 5% on subordinate liens (calling these high cost
loans).
The Fair Finance Watch analysis shows that in its home state of Alabama
in 2005, Regions confined 51.66% of its African American borrowers to
higher cost loans over the rate spread, versus only 23.15% of its white
borrowers. That is, Regions confined African Americans to high cost
loans 2.23 times more frequently than whites, while denying 30.69%
African Americans' applications for loans, versus only 21.29% of whites'
applications.
Regions
NY self-cheering
In Louisiana in 2005, Regions confined 54.92% of its African American
borrowers to higher cost loans over the rate spread, versus only 27.88%
of its white borrowers. Regions confined African Americans to high cost
loans 1.97 times more frequently than whites, while denying 30.71%
African Americans' applications for loans, versus only 22.27% of whites'
applications.
In neighboring Mississippi, Regions in 2005 confined 38% of its African
American borrowers to higher cost loans over the rate spread, versus
only 18.38% of its white borrowers. Regions confined African Americans
to high cost loans 2.07 times more frequently than whites, while denying
35.87% African Americans' applications for loans, versus only 24.68% of
whites' applications.
Throughout Mississippi and their other footprint states, the banks have
been asking community groups and charities to write letters of support,
including references to a Community Reinvestment Act pledge the two
banks announced. The Fair Finance Watch comments argue that given the
high percentage of Regions' mortgages which are high-cost, the pledge
may represent a promise of predatory lending.
While Fair Finance Watch has focused the regulators on these three
Katrina Zone states, nationwide in 2005 Regions confined fully 73.55% of
its African American borrowers to higher cost loans over the rate
spread, versus only 51.78% of its white borrowers. In Florida in 2005,
Regions confined 66.97% of its African American borrowers to higher cost
loans over the rate spread, compared to 45.98% of its white borrowers.
And in North Carolina, the headquarters of Regions' subprime unit
Equifirst, Regions in 2005 confined a whopping 88.76% of its African
American borrowers to higher cost loans over the rate spread, versus
71.66% of its white borrowers.
Regions and AmSouth have continued supporting other subprime lenders.
Uniform Commercial Code filings filed by Fair Finance Watch show for
example that Regions on July 18, 2005, made a loan secured by all
"accounts and proceeds" to Eagle Title Loans, Inc. of Athens, Alabama.
Also in Alabama, Regions lends to Twin States Pawn of Butler and Boaz'
Sand Mountain Pawn. In Louisiana, Regions lends to LA Pawn Shop of West
Monroe. In Arkansas, Regions lends to A-1 Pawn of Russellville. In the
Sunshine State, Regions lends to Deerfield Pawn Brokers of Deerfield,
Florida.
The issue of banks funding such fringe financiers is one that's in
evolution. In response to similar comments from Fair Finance Watch, the
Atlanta-based bank SunTrust
committed to stop lending to auto
pawn and payday lenders.
AmSouth, which Fair Finance Watch says refused to provide its mortgage
data in computer analyzable form, lent to Rent to Own Pasco of Pasco,
FL, and Pasco Jewelry and Pawn in the same city. The Fair Finance Watch
comment conclude that "while the merger should be denied on all of the
above grounds, any merger of this size in the still-unrepaired and
underbanked zone impacted by last year's hurricanes militates for a
required Katrina Zone CRA Lending Plan, and for public hearings."
How this call for hearings will fare, in the face of the letters of
support solicited by the banks, remains to be seen. But the need to
focus on economic justice in the areas hit by Hurricane Katrina is hard
to dismiss if one looks at the region, so to speak, in this one-year
anniversary of disregard and destruction.
JPMChase to Close Four Branches in Low and
Moderate Income Tracts
BRONX, NY,
May 18 -- JPMorgan Chase has today for the first time specified
that it has identified in low- and moderate-income census tracts four of
the Bank of New York branches it seeks to acquire "which are located
close to a JPMCB branch." This is essentially code language that these
four low-income branches would be closed if the acquisition is approved.
JPM Chase's statement, in a May 18 letter responding to
Fair Finance Watch's
April 17 and May 6 comments
to the Office of the Comptroller of the Currency, declines to provide
the addresses of these four branches and the 46 other branches, some
surely adjacent to low-income tracts, which the letter projects would be
closed. The figure "four LMI branches" is qualified by the statement "in
New York City." Since many of Bank of New York's branches are outside of
the five boroughs, might even more than four low- and moderate-income
census tract branches be closed? Developing...
Other Inner City Press
reports are archived on
www.InnerCityPress.org -
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UN Gives Mugabe
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In the Sudanese
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Empty Words on
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