Sunday, November 17, 2019

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B. Foreclosures and Predatory Lending

In minority communities, which have been devastated by foreclosures often brought about by subprime loans predatorily extended, women of color have emerged as those most harshly hit. Urban communities have been eviscerated by the mortgage crisis. Emerging evidence confirms that women of color, who often are the heads-of-household, are being disproportionately foreclosed upon, based primarily on the lopsided number of minority women that were steered into subprime loans, often through devious predatory lending. One report indicates that African American women were 256% more likely to receive a subprime loan than white men.

Predatory lending occurs when a lender deceptively convinces borrowers to agree to unfair and abusive loan terms, or systematically violates terms in ways that are difficult for a borrower to defend against. Subprime loans are those loans most likely to be written through predatory lending practices to borrowers who do not meet prime underwriting borrower guidelines, and lenders prefer these loans because profit margins can be significantly higher if a borrower pays out the loan. Subprime mortgages typically are written for borrowers who are adjudged to have very high credit risk, often because they lack a strong credit or work history or have other characteristics that are associated with strong probabilities of default. Subprime loans typically carry much higher interest rates than conventional loans.

It is now well established that predatory lending was a primary driver of the financial market crisis. Mortgage brokers, seeking higher origination fees and profit spreads, fervently sought out borrowers to whom they could sell subprime mortgages. Most often, minority communities were targeted for these predatory loans. In 2006, fifty-five percent of loans to African Americans were subprime, despite the fact that many of those borrowers qualified for prime loans. Additionally, statistics indicate that forty percent of loans to Latinos were subprime and thirty-five percent of loans to American Indians were subprime; however, just twenty-three percent of loans to whites were subprime. Women also received less favorable loan terms across equal presentations of credit worthiness.

Studies indicate that minority borrowers were purposely steered into risky and expensive subprime loans, despite being qualified for better terms. Those lenders who steered minority borrowers into subprime loans were often mortgage brokers who were eager to capitalize on significantly larger profits. For instance, [i]n two audit studies wherein creditworthy testers approached subprime lenders, whites were more likely to be referred to the lenders' prime borrowing division than were similar black applicants. Further, subprime lenders quoted the black applicants very high rates, fees, and closing costs not correlated with risk. Because minority communities and borrowers were targeted predatorily for subprime loans, foreclosures have devastated urban communities and their families.

Additionally, recent evidence indicates that women of color received significantly higher interest rates than white men on precisely the same loan terms and credit scores. Further, unemployment is devastating urban city centers as women of color are facing joblessness at rates significantly more injurious than are white males. The impact of this reality on the black family has been staggering.

Of course, one of the primary reasons that the financial market crisis has hit women of color and their families so hard, notwithstanding predatory lending and subprime loan abuse, is that the African American and Latino family has been dramatically disrupted in the past twenty-five years. Because America massively incarcerates its minority male citizens, women of color as heads-of-household have become routine in minority communities. Hundreds of thousands of male wage earners have literally been removed from minority communities and placed into jails and prisons throughout the nation. The United States has adopted as official policy, a drug war that incarcerates men of color at unprecedented rates and percentages that exceed any other country in the world.

Vernellia R. Randall
Founder and Editor
Professor Emerita of Law
The University of Dayton School of Law

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