"It's fundamentally an industry that prices based on risk, not race," said Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association.
Misunderstandings
Many people walk into costly loans without knowing it.
Jared Velazquez, a Seattle chef, says he did not understand the terms of an adjustable-rate mortgage that contributed to his financial problems, which are so severe he is preparing for bankruptcy. A native of Mexico, he finds his English is sometimes inadequate for technical conversations, like talking to a loan officer.
"I think there are people who take advantage of this," Velazquez said.
At $1,800 a month, the payments on a five-bedroom West Seattle house he bought in 2003 were several hundred dollars more than what his mortgage broker said they would be, Velazquez says. But he signed the loan papers anyway, figuring he would find a way to make it work for the sake of his family.
A year later, the payments grew to more than $2,000 a month, something Velazquez did not realize could happen when he got the loan. Last December his employer went out of business, putting him out of a job.
Threatened with foreclosure, Velazquez sold the house in June and now lives with his wife and three children in a one-bedroom apartment in Normandy Park.
James Ballentine, director of grass-roots and community outreach for the American Bankers Association, says one reason that racial disparities may appear in lending is some borrowers do not have the financial education necessary to shop for mortgages.
"Everyone needs that education," he said, but African-American and Hispanic populations traditionally have not received it.
A local mortgage broker, Angela Ceaser, said that when she was a specialist on predatory lending for the Seattle Office for Civil Rights, "the majority of people who had awful, crazy, disgusting rates were people of color."
Part of the problem, she said, is that people who grow up in neighborhoods where there are more high-cost lenders than bank branches are more likely to go to those lenders, and end up with loans that carry high fees and interest rates.
National numbers worse
Lenders have long been required to file race and income data for each mortgage application they take, and to indicate which applications are accepted.
A new federal regulation requires lenders also to indicate which of the mortgages they make carry high interest rates. For a 30-year fixed-rate loan last year, that meant about 8 percent or higher. Federal regulators are expected to release the 2004 data for all lenders this month.
Despite the racial disparities, there is some good news in the numbers. The local data show that high-rate mortgages are not as prevalent in the Seattle area as they are nationwide.
Only 3.6 percent of homebuyers here received high-rate loans last year, compared with 8.3 percent of homebuyers across the country.
And fewer mortgage applications were rejected by lenders here last year — 9.8 percent, compared with 11.5 percent nationally.
Some local professionals are surprised at the area's relatively small percentage of high-rate mortgages.
"I'm perplexed at how low that number is, maybe because all I see is all bad, all day long," said Melissa Huelsman, a Seattle attorney who specializes in bankruptcy, fraud litigation and predatory-lending law.
Others say Seattle has strong financial-education programs and helpful lenders who make sure fewer borrowers here get high-rate loans.
Ironically, it could be that Seattle's pricey real-estate market, which has erased the possibility of homeownership for some people, translates into fewer high-rate mortgages for the area.
"Seattle has very high and increasing housing values, so that makes a lot of the loans safer from a lender's point of view, which means interest rates are lower," said Calvin Bradford, a Williamsburg, Va.-based researcher and consultant on the housing and lending markets. The rising home values mean the lender is likely to recoup the value of the loan and other costs if foreclosure occurs.
Bradford has looked at Seattle's housing data off and on over the past decade.
"Seattle was always different," he said. "It's an upscale market that doesn't have a huge poor minority population. The question is, why do these disparities still exist? They're still there, just scaled to the market."
Germaine Covington, director of Seattle's Office for Civil Rights, said Seattle has a problem with lending discrimination, but that it is difficult to address.
"Race relations in this community compared to the East Coast are more subtle," she said. "It doesn't mean the discrimination doesn't exist. It means it's harder to identify and address." |
Comment by George C. Leef, Director of Research