UPDATE:
Today’s Dallas
Morning News front
page article about North Texas minorities overpaying
on home loans caught my eye. The DMN
found that a third of all Dallas-Ft. Worth
home mortgages taken out by minority applicants
in 2004-2005 involved high cost sub-prime mortgages
like the ones I described in my earlier post
of December 7th, 2006 (below). Ann
Graham, a professor of law at Texas
Tech University is
quoted as saying, "It's definitely a problem
because there are borrowers out there who are
ending up with loans that are inappropriate
for them." She
must be getting the same sinking feeling I'm
getting.
That feeling goes something like this: If
you are African American or Hispanic and you finally got
into the ranks of homeowners, watch out; the rug may just
get pulled out from under you and if you weren't careful,
you'll also be stuck with a higher interest rate than a
non-minority borrower with equal credit. Of further interest,
the article points out the sweeping demographic changes
the Dallas-Ft. Worth area is undergoing. In 1990,
17% of the homeowners in the Dallas-Ft. Worth area were
minorities. In
2005, the minority home ownership numbers in the Dallas-Ft.
Worth area had climbed to 31% - an eye-popping gain in
fifteen short years.
ARTICLE UPDATE: The Los Angeles Times recently published an article about California home owner defaults and foreclosures. Take a look, if you have time, at this informative article.
Over the past decade, homeownership among minorities has
steadily increased. One reason for this increase has been the new breed
of high cost loans, or subprime loans, as they're known in the industry.
December 7, 2006 Posting
The advent of "looser" credit standards during the past decade coincided
with a strong housing market to create the Perfect Storm. Ever
since I read Sebastian Junger's book, The Perfect Storm,
I just love using the title to describe impending doom. Who is doomed, you may be asking? The minority residents of most urban areas where the vast majority of subprime loans were made. Why are these new homeowners, some of whom are the first person in their family to own a home ever, doomed? Financiers
like Countrywide, Ameriquest, IndyMac, Ditech and Amerisave are about to reset the subprime adjustable rate mortgages they gave out like candy.
Those loans were already 3 points higher than rates available to more creditworthy
borrowers. The industry stridently claims that subprime loans are a boon for folks who have dinged up credit. They've
been a boon alright, to the industry, where the percentage of subprime loans
went from 2.4% of all outstanding loans to 13.4% of of the total in just 6
years.
Mortgage companies make more profit on subprime loans than they do on conventional
loans. Hey, that's the American way, you might be saying. I don't disagree; after all, businesses are in the business of making profits. However, even the industry acknowledges that they shouldn't be in the business of putting people in homes they cannot stay in. According
to Susan Wachter, a professor at the Wharton School of the University of Pennsylvania,
subprime mortgage lending is concentrated in urban areas and is especially
high in minority communities. Think the Texas border, California, and Southern cities with high minority populations. The hitch is whether or not the mortgage companies, banks, and investors who pushed these subprime loans, offered the same loans to all borrowers or, did they steer minority borrowers into subprime loans only. When
those rates reset, urban areas with concentrations of new minority homeowners
will be hit with the perfect storm of rising foreclosures.
Lawsuits will continue to fly. So who are these greedy ambulance chasing lawyers doing the suing? One
of the first lawyers to sue a subprime lender was none other than Elliott Spitzer,
newly elected Governor for New York. As attorney general for the state
of New York, he discovered that the Home Mortgage Disclosure Act showed
that black and Hispanic borrowers were more likely to get subprime loans from
Countrywide. Countrywide agreed, with lots of pressure from the New York attorney general, to adopt measures to prevent discriminatory pricing for minority borrowers. The
settlement agreement suggests that Countrywide was steering minority borrowers
into higher cost loans.
Countrywide is probably the tip of the iceberg. Let's hope when the dust
settles, the subprime market doesn't end up being written about as another
artful ploy to separate less wealthy folks from their hard earned money.
©2007 Angel Reyes
Read more articles by Angel Reyes and Brian Cuban at BrianCuban-AngelReyesBlog.com.
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