Study of DC area loans reveals racial component to lending and
foreclosure unexplained by objective underwriting criteria

WASHINGTON, DC — As financial reform works its way
through the Senate, a new study by the National
Community Reinvestment Coalition (NCRC) indicates that subprime
lending and subsequent resulting foreclosures were led by the private
market and contained a clear racial component not explained by
objective underwriting criteria. African American and Latino borrowers
were more likely to receive a subprime loan, and to go into
foreclosure, than similarly situated white homeowners, controlling for
credit risk and other borrower, neighborhood and loan characteristics.

The Government Sponsored Enterprises (GSEs) appeared to have a
moderating effect on risky and abusive lending practices; privately
securitized loans went into foreclosure twice as often as loans backed
by the GSEs. The study can be downloaded at

“Private market players, from brokers to mortgage lenders to Wall
Street, created a lending pipeline typified by risky, abusive and
unfair practices,” said John Taylor, president and CEO of NCRC. “It is
a shameful condition that borrowing while black or Latino remains a
hazard in this country. Without strong regard for the risky
characteristics of the products they were peddling, lenders and Wall
Street chose short-term profits over fair and prudent lending. These
risky products were targeted to certain communities at first, and then
spread elsewhere.”

“In the very place that Congress calls home, the ongoing existence of
these problems is unconscionable. The study demonstrates the need for
strong financial reform and the creation of an independent Consumer
Financial Protection Agency that many of us have understood for a long
time,” said Taylor. “The existing regulators have simply failed in
their duty to protect American consumers. What’s more, the troubling
racial disparities demonstrate the ongoing necessity of the Community
Reinvestment Act, which needs to be strengthened and expanded to cover
mortgage lenders and Wall Street, the chief purveyors and purchasers
of risky subprime loans.”

The study uses regression analysis to examine a statistical sampling
of loans in the Washington, DC, area. The patterns presented are
similar to national trends. The findings of the study include:

—  Latinos were 70 percent more likely and African Americans 80 percent
more likely than their white counterparts to receive a subprime loan.
—  African Americans were almost 20 percent more likely and Latinos were
90 percent more likely than their similarly situated white
counterparts to go into foreclosure.
—  Loan characteristics, especially payment-to-income ratios, adjustable
rates, high-costs (subprime) and balloon payments were found to have a
significant effect on loan performance.

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