This Week in the Mercury


Wednesday, November 26, 2008

Black People Got Worse Loans Than Whites

Posted by Sarah Mirk on Wed, Nov 26, 2008 at 2:43 PM

Speaking of white privilege, this week I wrote an article for the news section about how the people hardest hit by the foreclosure crisis in Portland have so far been African American and elderly people.

There was a big forum last weekend at the PCC on Killingsworth addressing the fact that North Portlanders are losing their homes (and the situation looks like it will get worse) and a couple people there pinned the racial disparity on cultural issues: African Americans in that neighborhood tend not to trust banks, thanks to a long history of discrimination, so they don't call their lenders and try to work something out until they're way buried in debt.

But it's not just cultural. A year ago, when no one really cared about mortgage foreclosure, the Oregon Center for Public Policy in-depth study on subprime lending and found that in Oregon, black and Hispanic borrowers were twice as likely to get a subprime loan as whites of the same income level. They looked at Washington Mutual, specifically, and found a significant, racially-skewed pattern of loans.

That doesn't mean WaMu is racist. Loans from WaMu's big main banks were actually pretty good -- only 1 out of 28 loans were subprime. But WaMu makes a lot of its loans through smaller sort of franchise mortgage companies (the kind of mortgage storefront you'd see in a strip mall or somewhere) and those were really awful. At one of those smaller, WaMu-backed companies OCPP investigated, Long Beach Mortgage, 9 out of 10 loans were subprime.

That means, irregardless of race, if you walked into a Long Beach Mortgage to get a loan, you were pretty much screwed. But black and Latino people tended to walk in there much more than whites: 63 percent of African American customers and 74 percent of Latinos got their loans through Long Beach, while only 17 percent of whites did.

Why this happens? That's below the cut.

Trying to get a handle on how blacks and Latinos wound up going to the shittier loan stores so much more often than well-established banks, I called to Kevin Leachman, who helped research the study. He said a lot of the problem comes down to Oregon's lack of regulations. "There are some very loose limitation on who can be a mortgage broker," says Leachman, "You could - and people did this - get a computer and a fax machine and you set up out of your bedroom. More established people might actually have a storefront." Also in Oregon, it's totally legal for brokers to get bonuses for signing people up for loans at high interest even if they qualify for lower interest. And you don't even have to them that they could be getting lower interest. Senator Ben Westlund tried to ban this ridiculous practice (called "steering") in a bill last spring, but powerful financial lobbies were against it and it died.

So why do poor and minority populations tend to go to banking agencies or fax-machine-bedroom operations that shaft them with high interest rates and hidden fees? That was the subject - on a slightly different issue - of this super interesting NYT's article a few weeks ago about the spread of Nix's check cashing and payday loan chain.

The gist of the article is this: in communities were access to credit is novel and banks are not trusted, people choose to not use banks even if it doesn't seem to make the most financial sense. Instead, they'll do business with financial groups they know personally or are a prominent part of their neighborhood.

But some 28 million Americans still go without a bank account, including more than 20 percent of Latino and African-American households, and more than 50 million have no credit score, which means no access to mainstream credit. These are the people in line at Nix. ... Some go to Nix because check cashing is what they know. Others go because they live in communities where nobody takes a check or a card, not even the landlord, and cash machines are scarce.... But there are less-obvious factors too. Nix hires from the neighborhood and pays well enough that cashiers stick around. Word spreads, and in Watts or Highland Park or Pacoima, that reputation often carries more weight than some bank ad on a bus stop. “It’s social marketing 101,� says Hopkins, the consultant.

Leachman sees the parallels with Oregon's mortgage broker world. Brokers were hired to go out and dig up new business.

"They’re looking for underserved populations – people who could buy a home but don’t currently own a home. Since about 2/3 of housing units in the state are already owned homes so if your job is to go out and find somebody you can get into a home, you want to go to places where there’s more renters and you might be especially interested in places where banks haven’t done a good job of building a customer base," says Leachman. This led brokers straight to communities who tended to avoid banks. In Portland, that meant neighborhoods of color. Today, we're seeing the result.

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