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Predators eat away Hispanics' American dream

Washington Hoy
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Isabel M. Estrada Portales
06/03/2005

Predatory lending is a chronic disease of the homebuying market, but Hispanics seem to be catching at a noticeably higher rate than others, according to a May study by the National Council of La Raza.

“Homeownership is the ultimate symbol of the American Dream, but it is inconsistent with our values that we allow predatory mortgage lenders to cheat many Hispanic homebuyers from fully enjoying the economic benefits of this classic marker of success,” stated Janet Murguia, NCLR President and CEO.

“We must do more to protect all consumers from unscrupulous lenders and ensure that the mortgage industry provides equal opportunity for all Americans to get the ‘best deal’ possible when purchasing a home.”

The report by NCLR, Jeopardizing Hispanic Homeownership: Predatory Practices in the Homebuying Market, seems to confirm the persistent suspicions of consumer advocates and community leaders about differential treatment when it comes to mortgage lending.

Predatory lending is certainly not a new phenomenon, and it's also well known that it normally victimizes low income, minority and elderly communities, but so far, the specifics of the Hispanic homebuying experience have been overlooked.
The report faults the mainstream financial services industry for not generating products and practices that meet the needs of the Latino families, thus allowing “many bad actors to prey upon vulnerable families trying to purchase their first home.”

There has been partial efforts, generally coming from specific institutions, to alleviate the situation. This past month, CitiFinancial teamed up with Senator Paul Sarbanes, Democrat from Maryland, Leadership Conference on Civil Rights (LCCR), Self Help Credit Union and Center for Responsible Lending (CRL), and AARP to highlight progress on Citi's real estate lending practices.

Some of the changes in CitiFinancial include: introducing a product to offer higher credit-quality customers a lower-rate loan, reducing the maximum prepayment penalty, and eliminating mandatory arbitration provisions on real estate secured loans later this year.

"Our goal is to be the most respected global financial services company," said Marge Magner, Chairman and CEO of Citigroup's Global Consumer Group. "The initiatives we've taken in our consumer finance real estate lending business in the United States and the recognition that our industry-leading practices have received show the significant progress that we've made."

In fact, the mandatory arbitration provisions, and the prepayment penalties are two of the significant problems the report have found disproportionately affected the Hispanic community. The mandatory arbitration forces borrowers to give up their right to litigate, and the prepayment penalty imposes heavy fees on borrowers that manage to pay their mortgage in full before the end of their term, thus saving in the overall interest payments.

While the overall homeownership figures for Latinos may be modest relative to Whites, the number of Latinos entering the mortgage market each year continues to swell. Less than half of Latino households nationwide own a home, but of the more than five million Hispanic households who owned their home in 2003, 71.6% had an outstanding mortgage, according to the report.

The number of Hispanic families closing purchase mortgages was 185% higher in 2002 than in 1993. Latinos are increasingly influencing the shape and size of the U.S. mortgage lending market.

Last August the President of the Consumer Bankers Association, Joe Belew, hailed an 18% increase in lending to Hispanics and a 15% increase in mortgage lending to blacks from 2002 to 2003. Those numbers compare to an 11% increase in mortgage lending to whites.

"This is solid progress in closing the homeownership gap. It is the latest evidence of payoff in the multi-year effort to promote homeownership among all segments of society," Belew said. Mortgage loans to Hispanics outpaced loans to whites by 64%, while lending to blacks surpassed lending to whites by 36%.

This numbers give Hispanics hope, but predatory lending actually takes a big cut out of wealth building for Hispanics, and that's not reflected on those numbers.
“The bottom line expressed in this NCLR report is that predatory lending is needlessly costing Latinos money and undermining their hard-earned efforts to accumulate assets for their families,” continued Murguia. “We must address these disparities and inefficiencies in the mortgage lending market to more sufficiently protect Hispanic homebuyers.”