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Minorities See Most Of Subprime Growth

Acorn publishes report from HMDA data

October 8, 2001

By SAM GARCIA

click here to read about racial disparity in loan denials

click here to read about disparity in government loan programs

In 1999, subprime loans made up 19% of the conventional home purchase loans received by African-Americans and 11% by Latinos, as compared to 4% by whites, according to a recent report from the Association of Community Organizations for Reform Now (ACORN). 'The Great Divide' is an analysis of racial and economic disparities in home purchase mortgage lending nationally and in sixty metropolitan areas.

The report analyzes data released by the Federal Financial Institutions Examination Council (FFIEC) about the lending activity of more than 7,800 institutions covered by the Home Mortgage Disclosure Act (HMDA). The reporting includes the number and type of loans correlated by the race, gender, income, and census tract of the applicants, and the disposition of those applications, in each MSA where loans are originated.

According to the report, subprime lending to minorities has steadily increased since 1993, when subprime loans made up 2% of the conventional purchase loans to African-Americans and Latinos and 1% of the conventional loans to whites.

Acorn suggests that subprime lending is involved with fraud such as 'property flipping' scams.

The report went on to say that from 1998 to 1999, subprime loans accounted for 41% of the growth in conventional purchase loans to African-Americans and 15% of the growth to Latinos. In contrast, subprime purchase loans did not make up any of the overall growth to whites, with subprime purchase loans decreasing 2% during this period. Acorn also pointed out the following.

  • Subprime loans made up 100% of the increase in conventional purchase loans made to African-Americans from 1995 to 2000, 37% of the increase to Latinos, and just 17% of the increase to whites.
  • The number of subprime purchase loans to African-American homebuyers has risen 631%, while the number of prime conventional purchase loans received by African-American homebuyers in 1999 was 0.5% less than the number received in 1995.
  • Subprime purchase loans increased 509% to Latino homebuyers during this time, while prime loans rose just 29%.
  • White homebuyers also saw a 285% increase in the number of subprime loans and a 22.0% increase in the number of prime loans.
  • From 1998 to 1999, subprime loans accounted for 41% of the growth in conventional purchase loans to African-Americans and 15% of the growth to Latinos. In contrast, subprime purchase loans did not make up any of the overall growth to whites in purchase loans since the number of subprime purchase loans decreased 2% during this period.

Acorn recomends that lenders offering both prime and subprime products must establish uniform pricing and underwriting guidelines for all of their lending subsidiaries, and for all of the communities in which they do business. Additionally, Acorn recomends that Congress and state legislatures pass strong anti-predatory lending legislation to protect consumers from abusive practices, which have reportedly been targeted at lower-income and minority communities.

Acorn says F