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State NAACP charges lenders with discrimination
By Scott Miller
Staff Writer
The S.C. chapter of the National Association for the Advancement of Colored People has joined a national class-action lawsuit charging mortgage lenders with discriminating against minorities.
The suit claims blacks and Latinos pay higher interest rates than whites with similar credit histories. The complaint is based on information from a 2006 report by the Durham, N.C.-based nonprofit organization Center for Responsible Lending.
But some said such data just isn’t available to make such a claim.
“I’d be willing to bet those numbers are a little skewed. (The report) doesn’t take in the whole picture,” said Penny Cothran, vice president of communications for the S.C. Bankers Association. “And race, of course, is the thing you’re not supposed to be looking at.”
Lonnie Randolph, president of the South Carolina chapter of the NAACP, did not return calls.
But during a press conference in Columbia to announce the chapter’s involvement in the suit, he told reporters that current mortgage relief efforts from the federal government will do nothing to help borrowers already hurt by loans with rising interest payments.
Those relief efforts, if approved, would increase future federal and state oversight of mortgage lenders and brokers and require lenders to prove borrowers can afford the loans.
The NAACP lawsuit, meanwhile, seeks compensation for borrowers already damaged by allegedly discriminatory loans. It also asks the court to halt the alleged discriminatory lending practices and require banks to hire more minorities and train employees on racial equality.
The companies named in the suit, filed last July in the U.S. District Court in Los Angeles, have denied the accusations in statements, saying race isn’t a factor considered in loan applications. Defendants in the case are Ameriquest, Fremont Investment & Loan, Option One, WMC Mortgage, Long Beach Mortgage, BNC Mortgage, Accredited Home Lenders, Encore Credit, Bear Stearns, First Franklin Financial, HSBC Finance and
Washington Mutual.
The center in 2006 analyzed more than 177,000 subprime loans and found that blacks and Latinos are 30% more likely to receive high-interest loans than white borrowers with similar credit histories, the report said. Minority borrowers also were more subject to prepayment penalties, according to the report.
The report said much of its information came from the federal Home Mortgage Disclosure Act, which requires lenders to report borrowers’ race, sex and other information related to subprime loans. The center requested additional information from banks, including borrowers’ credit histories.
“This analysis was possible because we supplemented the 2004 HMDA data with information from a large, proprietary subprime loan data set. Individually, both databases lack certain pieces of data that would be helpful for an in-depth comparison of subprime loan pricing,” the report states. “This analysis does not allow us to estimate precisely how much race and ethnicity increase the prices charged to borrowers.”
Cothran said the report failed to analyze employment history, debt-to-income ratio, collateral or loan-to-value ratios, four of the five most important factors lenders consider when considering a loan application.
The fifth factor, she said, is a borrower’s credit history.
Charles Knight, an attorney with the S.C. Department of Consumer Affairs, agreed that the report presents a skewed picture because it didn’t consider important underwriting information. The department is crafting legislation, he said, that would require lenders to report more of that data to the state.
“There’s just not enough information to make a judgment call (on any alleged discriminatory lending),” he said. “Right now we just don’t have that information.”
In its report, the center acknowledges that more information would have been useful but maintains the report’s findings are accurate nonetheless. The center calls on the federal government to expand HMDA reporting requirements to include data on risk and pricing.
Scott Miller is a staff writer for the Business Journal. E-mail him at smiller@setcommedia.com.
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