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Mortgages and minorities
Published in The Saudi Gazette on 10 - 12 - 2008

THE mortgage crisis that has placed millions of Americans at risk of losing their homes has been especially devastating for black and Hispanic borrowers and their families. It seems clear at this point that minorities were more likely than whites to be steered into risky, high-priced loans — even when researchers controlled for such crucial factors as income, loan size and location.
The Congress that takes office in January can start to deal with this problem by strengthening fair-lending laws, especially the Community Reinvestment Act, which encourages fair, sound lending practices while requiring banks to lend, invest and open branches in low- and moderate-income areas.
Lawmakers should also extend that law to cover the often fly-by-night mortgage-lending companies that helped drive the subprime crisis. Those companies saddled entire neighborhoods with risky, high-priced loans that borrowers could never hope to pay back, sold those loans to Wall Street and then went out of business.
Congress needs to keep in mind that many of those players are surely to be back in operation somewhere down the line. Some already have returned in the guise of offering to help homeowners avoid foreclosure.
The need to revisit fair-lending law is evident in numerous studies of federal lending data. A particularly striking analysis in 2006 by the National Community Reinvestment Coalition found that nearly 55 percent of loans to African-Americans, 40 percent of loans to Hispanics and 35 percent of loans to American Indians fell into the high-cost category, as opposed to about 23 percent for whites. There also were troubling gender differences. Women got less-favorable terms than men.
A classic discrimination study by the reinvestment coalition found that black and Hispanic people who posed as borrowers received significantly worse treatment and were offered costlier, less-attractive loans more often than whites — even though minority testers had been given more attractive financial profiles, including better credit standings and employment tenures. That study, and others, go a long way to rebutting mortgage companies' claims that lending patterns are explained by so-called risk characteristics like credit scores.
John Taylor, the coalition's president, told a Congressional hearing last year, that minority borrowers were paying a “race tax.” While lenders are required to report to the federal government such things as race, gender, census tract, amount of loan and income, they omit credit score data.
By guarding the single most important statistic used in making loans, the lenders have given themselves a ready shield against charges of discrimination.
But with indications of discrimination popping up everywhere, Congress has no choice but to require lenders to report on all data that form the basis of lending decisions, including data that would permit neutral third parties to determine whether lenders were discriminating by race. Ideally, lenders would have to report, not just on the borrower's credit worthiness, but on details of the terms and conditions of the loan itself.
Looking back, it's hard to say whether such reporting requirements would have forestalled the subprime crisis. Certainly, they would have given consumer advocates and regulators more information earlier on.
There is no excuse for not putting them in place now to avoid the possibility of history repeating itself and having all those risky, high-priced loans issued and sold off as securities before anyone intervenes. – An editorial from the New York Times __


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