Were Foreclosed Sub Prime Mortgages Targeted To Minorities?

Posted on December 7th, 2007 by saman

We all know about the sub prime adjustable rate mortgage crisis and the many financial and economic problems that have come to pass from so many foreclosures. But some people have been suggesting that brokers and lenders specifically targeted Blacks, Asians and Hispanics in their efforts to sell these risky loans to people who really couldn’t afford them and weren’t aware of interest-rate resets two years after the fact.

Some statistics seem to bear out this minority-targeting assumption. For one thing, Blacks were 2-3 times more likely to get high-cost loans than Whites were. Asians ran a close second, followed by Hispanics. FHA data shows that neighborhoods where the majority of residents have lower credit scores also had a greater concentration of high-cost loans. Other facts show that the biggest lenders in minority neighborhoods were those that dealt only in sub prime loans, while full-service banks that offer a full range of mortgage loans tend to locate where they can expect the greatest number of deposits, so they have few branches near to minority areas.

We do know that a great many brokers and telemarketers placed great effort on marketing their sub prime ARM loan products to minority borrowers using the assumption that they would be less financially sophisticated and easier to sell. It also seems apparent that a great many of the minority borrowers reduced the equity in their homes in order to gain financial liquidity for other debts and expenses, that this increased the monthly payments and the loans length of maturity. Thus, these minority homeowners must take some of the blame for hastening the inevitable consequences of poor financial management.

Black or White, the loss of one’s home is a serious personal tragedy as well as a neighborhood and area tragedy. Heavy concentrations of foreclosures lead to vacant properties that attract crime, neighborhood decline and an overall drop in real estate values that hurts everybody across the board.

We do know that more often than not, Blacks, Asians and Whites in that order of priority were targeted by predatory lenders who didn’t give a hoot what would happen to these folks one or two years down the road. Their interest was a fast close and a quick bonus that was often sizeable. However, many of them paid for it at the end of the same road, since more than 100 U.S. mortgage lenders have gone out of business and it is said that banks, pension systems, hedge funds and many investors are predicted to lose as much as $400-billion. And if the crisis were to continue through 2009 unchecked, the value of all U.S. residential real estate could decline by as much as $4-trillion.

The President today announced a new program from the feds that will likely prevent many future foreclosures while it places tighter controls on lender’s practices. Of course this will be no help to homeowners already foreclosed or to many now in default and pending foreclosure. It appears too late for them. Fortunately, it’s also too late for many of the predators that led them down this road.