Despite court suits, new legislation and other legal attempts to end problems in the subprime mortgage lending market, minorities and low-income borrowers continue to receive a disproportionate number of subprime loans, and in some cases the disparity has increased dramatically.

In 2000 African-American homeowners who refinanced were 2.8 times as likely to receive a subprime loan as whites, 4.4 times as likely in 2001. Latinos in 2000 were 1.5 times as likely to receive a subprime loan, but in 2001, 2.2 times as likely, according to the latest "Separate and Unequal: Predatory Lending in America," report from ACORN, (the Association of Community Organizations for Reform Now) the nation's largest community organization of low- and moderate-income families. The confrontational association based in Washington, D.C. represents more than 120,000 member families organized into 600 neighborhood chapters in 45 cities nationwide.

"Part of our goal is to make subprime loans into a good thing. But we are complaining because some people are disproportionately much more likely to get subprime loans and so many of (those loans) are predatory," said David Swanson, ACORN spokesman.

"We are beginning to change that in scattered states and cities, Georgia, North Carolina, California, New York and Massachusetts. There are some new laws in place but all people are not getting the same access to prime credit," Swanson added.

Subprime loans are designed for borrowers who may have less than perfect credit. To protect lenders' extra risk, subprime loans carry higher rates and fees than prime loans. The loans can be valuable for home buyers and borrowers who could not otherwise borrow money to buy a home or refinance their existing loan.

Unfortunately, the subprime market has spawned "predatory lending" -- exorbitantly high costs, penalties and other financially abusive features in loans directed at specific groups including minorities, older, low-income borrowers and others who can least afford the cost.

Even without predatory loans, directing subprime loans at consumers when they can qualify for for prime loans is an unnecessarily costly propopsition.

"One third to one half of the subprime loans were going to borrowers who could have qualified for prime loans. And there are reports that show low-income borrowers are no greater risk of defaulting on the loan than upper income borrowers," Swanson said.

ACORN's study 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 report examined figures for the nation as a whole, as well as for 68 individual metropolitan areas.

It found that while the percentage of loans that were prime increased for all groups in 2001, due to a rush of low-rate refinancings, minorities benefited less than whites.

Published: November 27, 2002

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.