WASHINGTON The largest U.S. banks sold expensive subprime loans more frequently to minorities than whites, according to a study released Wednesday by a community activist group.
Fair Finance Watch found that big lenders such as Citigroup (C.N), JP Morgan Chase (JPM.N), Wells Fargo (WFC.N) and UK-based HSBC (HSBA.L) extended higher-cost subprime loans to African-Americans and Latinos far more frequently than whites, according to an analysis of 2006 mortgage lending data released this week.
At Citigroup, for example, blacks in the New York metropolitan area were sold subprime loans 4.41 times more frequently than whites, according to the study.
"The problem is many of these lenders confine people of color to high-cost loans even though they would be entitled to normally priced loans," said Matthew Lee, executive director of Bronx, New York-based Fair Finance Watch.
"Alongside the chaos in the subprime industry, predatory lending has grown and not diminished," warned Lee.
Officials at Citibank defended their lending practices, which was based on credit scores and other criteria including loan-to-value and debt-to-income ratios.
"We consider each application by the same objective criteria, which are blind to race, ethnicity, gender and any other prohibited basis," Citibank said in a statement, adding that the bank has ongoing dialogue with community groups to explore ways to make fairly priced credit more available.
Subprime mortgages, which have been increasingly popular in recent years, carry a higher interest rate and are offered to borrowers who often have a poor credit history and lower incomes. While the loans have helped to increase home ownership, they have been at the center of a recent surge in mortgage defaults.
Still, loan denials nationwide were more frequent among minorities. For example, Citigroup denied applications from blacks 2.10 times more frequently than those of whites and it denied mortgage applications for Latinos 1.84 times more frequently.
Wells Fargo, with nearly 20 percent of its 2006 mortgages in the subprime category, denied the applications of blacks 1.72 times more frequently than whites, while denying those of Latinos 1.57 times more frequently, according to Lee's group.
The bank said race was not a factor in its loan pricing and said regulators have studied the data for signs of biased lending.
"The Federal Reserve has repeatedly emphasized that the limited data analyzed in the report cannot support a conclusion that lending practices are discriminatory," a spokesman for Wells Fargo said.
Lee and other community activists for years have pushed for stricter fair lending standards, fearing that predatory lenders prey on the poorer minorities.
MORATORIUM ON FORECLOSURES
On Wednesday, national civil rights groups called for an immediate moratorium on foreclosures in subprime loans, noting that the bulk of them are made to minorities.
"As foreclosures continue to rise on subprime mortgages, a disproportionate share of the harm falls on African-American and Latino homeowners and the neighborhoods where they live," said the groups which include the NAACP and the National Fair Housing Alliance.
Some 40 percent of Latino families and more than half of African Americans who receive home loans get higher-cost mortgages, predominately subprime loans, those groups said.
To date, an estimated 1.5 million homeowners are facing foreclosure, according to research firm RealtyTrac, and Congress is now looking at tighter lending standards to protect unwary Americans from taking on loans that cannot afford.
Larger banks, Lee says, tend to set up their subprime lending shops in poorer neighborhoods. While they make credit available to riskier borrowers who have poor credit quality, these lenders tend to sell minorities these pricier loans regardless of credit quality, Lee says.
"Where the rubber will meet the road will be in how the Federal Reserve and other agencies act on specific disparities at specific lenders," said Lee.
HSBC sold 6,295 super high-cost loans that were at least 8 percentage points over comparable Treasury securities, or more than 12 percent interest on a 30-year mortgage in 2006 and about double the average for a borrower with the best credit.
HSBC, with 63 percent of its mortgages in the subprime sector last year, said it reviewed its lending practices and the bank was "confident that we are treating our customers fairly and with integrity," said Kat Hurham, a spokeswoman for
Even with the housing downturn, predatory lending is a still-growing problem, impacting not only homebuyers but also consumers, said Lee.
He warned that black and Hispanic borrowers taken together are much more likely than non-Hispanic white borrowers to obtain credit from institutions that report a higher frequency of higher-priced loans.
"It may be more symptomatic of a more serious issue," Lee said. "These patterns may stem, at least in part, from borrowers being steered to lenders or to loans that offer higher prices than the credit characteristics of these borrowers warrant," Lee said.