Bad Credit Home Loan Woes Hit Minorities Hardest

Elizabeth Redrick, 77, has lived in her Cleveland home for almost four decades. Now, suddenly, she may lose it.
She took out an Ohio mortgage two years ago hoping to lower her monthly costs and pay off a debt. Instead, she was hit with thousands in fees, and a mortgage payment that never went down.

Not something she can afford on a limited fixed income.

“I’ve been working far too long for this to happen,” says Redrick. “This is a disgrace.”

Stories like hers are all too common in a country reeling from a major housing slump and massive foreclosure filings that could affect millions.

Canadian finance officials worry the U.S. troubles could have an impact north of the border with falling demand for lumber and other materials.

But beyond the headlines is the reality that African Americans, Latinos and other ethnic groups are by far the hardest hit in a crisis created by bad credit home loan lenders of the predatory nature.

Moreover, they are being hit hard by so-called “subprime loans” that charge higher interest rates and fees for those with shaky credit scores.

In Massachusetts for instance, blacks and Latinos were 6-7 more times likely to have an expensive Boston mortgage than whites in the same income in 2005.

Women are also more likely than men to get bad credit home loans.

Redrick didn’t realize when her issues began that a good number of neighbors in her predominantly black community are in the same boat… or have already lost their homes.

More and more boards are going up on windows along streets in Cleveland, Chicago, Pittsburgh and other U.S. cities in a terrible downturn that’s disproportionately affecting non-whites.

What’s even more heartbreaking, says Lisa Rice, vice-president of the National Fair Housing Alliance, is that up to half of them would have qualified for a traditional mortgage.

The alliance is dedicated to ending discrimination in housing across the United States. It’s a combination of limited mortgage sellers close to their homes and a lack of awareness, said Rice.

Blacks relegated to certain neighbourhoods during nearly a century of “separate but equal” status always had fewer options when it came to credit, Rice said.

They couldn’t improve their situation because smaller lenders don’t report payments that can alter credit scores and provide for lower mortgage rates.

And traditionally, they received less help than Caucasians when they have problems making payments. The loan denial rate for high-income African Americans is still higher than low-income whites, said Rice.

But now it’s getting the wrong kind of mortgage loan that’s causing the problems. When housing prices rose sharply in many parts of the U.S. in the boom of the last few years, some lenders used spotty underwriting to give people loans that they couldn’t afford to pay back.

They built in fees and phony charges never disclosed.

Or they offered interest-only mortgages and other exotic financial products with a disillusioning whammy down the road that would surprise Canadians used to a system far more streamlined and regulated.

Subprime or higher-rate loans, for instance, account for about 20 percent of the U.S. mortgage market, compared with only five percent in Canada.

“There’s got to be a way where everybody gets on board behind sustainable loans,” says Brad Blower at Relman and Dane, a law firm in the U.S. capital that specializes in fair lending cases.

That’s more likely now that the foreclosure spike from the bad credit mortgage products is threatening more prosperous white areas too, catching the interest of legislators, said Rice.

“It should have gotten their attention a lot sooner.”

Federal Reserve chairman Ben Bernanke has promised hearings on mortgage defaults in the coming weeks in a bid to crack down on abuses.

Blower predicts there will be a national bill this year aiming to define suitable loans and outline the fiduciary duties of lenders and mortgage brokers - who can easily channel people into questionable products and don’t have to investigate whether a borrower can make the payments.

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