Minority residents are more vulnerable to rate shock from subprime mortgages in Baltimore, where even upper-income African-American homebuyers were almost four times more likely to get a high-cost loan than low-income white borrowers last year, according to a study of federal home loan data.
The study released yesterday by ACORN, a national community organization for lower-income families, is based on public disclosures from lenders about applicants and home loans they extend, as required under the Home Mortgage Disclosure Act. Similar findings have been made by previous studies.
"It's a persistent problem. There's still this disparity year after year," said Stuart Katzenberg, state director for ACORN. "It's an issue of responsible lending."
Banking experts and lending industry officials question whether such findings demonstrate discrimination. They note that the studies do not take into account various factors, such as an applicant's credit score and employment history as well as size of the loan compared to the appraised value of the property, all of which play a role in determining pricing.
Lenders are not required to disclose that kind of information, which they argue would violate the privacy of borrowers. They do disclose the borrower's income, which is of limited value in determining overall creditworthiness, said James C. Ballentine, director of housing and economic development at the American Bankers Association, a trade association in Washington.
"They have a limited set of data so they have a limited analysis," Ballentine said of the ACORN study. "You cannot measure an individual's qualifications based on income alone. That simply is not how a loan is made."
ACORN's study comes as rising loan defaults on subprime mortgages have shaken credit markets globally. Subprime loans, which carry higher interest rates because the borrowers are considered at a greater risk of default, have become more prevalent in recent years and accounted for about 20 percent of all mortgage originations last year.
Nearly one-third of home purchase and refinance loans in the Baltimore area in 2006 were high-cost loans, which are defined as loans with an annual percentage rate at least 3 points above the rate on comparable U.S. Treasuries, according to ACORN, which stands for Association of Community Organizations for Reform Now. It used a sample of 19 of the largest lenders in the country, representing nearly 70 percent of all mortgages.
In the Baltimore-Towson metropolitan area, 48 percent of home purchase loans extended to African-American borrowers and 40 percent of loans to Latino borrowers were high-cost mortgages, the study found. By comparison, 14 percent of loans to white borrowers were classified as carrying high costs.
Those differences were more pronounced in the metropolitan area that includes Bethesda, Gaithersburg and Frederick, where about 41 percent of African-Americans and 45 percent of Latinos took on high-cost mortgages compared with 7.5 percent of white borrowers.
Similar trends emerged when ACORN looked at refinance loans.
When income is taken into consideration, 53 percent of upper-income African-American borrowers who make 120 percent or more than the median income in Baltimore and 44 percent of Latino borrowers in that income bracket got high-cost home purchase loans. That compares with 14 percent of upper-income and 17 percent of low-income white borrowers making less than half the median income.
The U.S. Census Bureau estimates that the median income in Baltimore was $36,031 last year and $65,144 in Maryland.
Katzenberg said subprime borrowers are often steered into adjustable-rate mortgages, which can rise steeply over time, and other unaffordable loans without being given a choice of a fixed-rate loan for which they qualify. He said such predatory lending practices date to redlining in the 1970s when loans were denied in certain areas.
"It's the old bait and switch," he said. "We're hearing about borrowers getting high-cost loans despite their income and credit histories. They deserve better."