NCRC report analyzes HMDA data
By COCO SALAZAR
3/28/2005

Women, minorities and lower-income borrowers continue to receive a disproportionate share of subprime loans, according to a recent study by a consumer advocate organization. But another group suggests risk, not social status, may be the reason these groups wind up in higher rate loans.

The National Community Reinvestment Coalition announced it analyzed lending activity in 331 U.S. metropolitan areas using 2003 home loan data and found that women were more likely to get subprime loans, than prime, in all of those areas.

Higher-cost loans were more predominant amongst African Americans in 98.5 percent of the metropolitan areas, while Hispanic and low- and moderate-income borrowers were more apt to have a subprime loan in 89.1 percent and 85.8 percent of the areas, respectively, the Home Mortgage Disclosure Act data reportedly showed.

"While responsible subprime lending serves credit needs, public policy concerns arise when certain groups in the population receive a disproportionate amount of subprime loans," the coalition said. "When subprime lending crowds out prime lending in traditionally undeserved communities, price discrimination and other predatory and deceptive practices become more likely as residents face fewer product choices."

Wright Andrews, executive director of the nonprime lending group Coalition for Fair and Affordable Lending, said he would be surprised if minorities as a group did not have higher percentages of nonprime loans, particularly because loans are underwritten and priced on the basis of risk.

"Much higher percentages of African-Americans and Hispanics are economically disadvantaged than Whites," he told MortgageDaily.com in an e-mailed statement. "Thus, when loans are fairly priced on the basis of risk, you must reasonably expect far fewer African-Americans and Hispanics will be able to meet the higher underwriting standards of the prime market."

"With respect to both women and many minorities, they may be economically disadvantaged due to past or present employment or other discrimination, but this is not discrimination by nonprime mortgage lenders," Andrews added.

The NCRC, which claims its mission is to increase fair and equal access to credit, capital, and banking services and products, said previous studies of fairness in lending have focused on large metropolitan areas, while its study showed that attention needs to directed to medium-sized areas as well, as these "tend to exhibit the worst fair lending disparities." Such was the case for medium-sized metro areas in the South where African-Americans have a large presence and in the West and Southwest where Hispanics are a large segment of the population.

Goldsboro, N.C., and Pine Bluff, Ark., tied as the areas reflecting the worst lending disparities to women. While 44.4 percent of the loans originated by subprime lenders were for women, prime lenders issued 22.3%, according to the announcement.

Andrews said he suspects higher percentages of women as a group are more economically disadvantaged than men and therefore also present higher risk profiles in many cases.

"Think, for example, of the huge number of women with kids struggling to make ends meet because deadbeat dads are not meeting their support obligations," Andrews said. "Unfortunate things like [that] put them at [an] economic disadvantage and make it harder for them to meet credit and other underwriting criteria."

In Macon, Ga., 59.3% of the loans issued to blacks were subprime, while 13.7 percent were made by prime lenders, NCRC highlighted.

In Salinas, Calif., 57.1 percent of the loans by subprime lenders reportedly went to Hispanics, compared with 25.5 percent for prime lenders.

Andrews pointed out that neither 2003 HMDA data, nor the upcoming more detailed 2004 data, includes key factors -- such as credit record and credit score, debt to income ratios, loan to value ratios, cash reserves -- that are used in deciding whether to make a loan and how to price it.

"The point is that you can't possibly conclude that discrimination is occurring based on the publicly available data," he said.

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