New Report Documents Persistence of Racial and Ethnic Disparities in Mortgage Lending in Boston

- By Alexandra Wilson

Race and ethnicity continue to play a role in mortgage lending patterns in Boston, according to a new report by the Massachusetts Community and Banking Council (MCBC). The report, prepared for MCBC by UMass Boston economics professor Jim Campen, shows that African-Americans were denied mortgage loans almost three times as often as white applicants in 2001. Latinos and Asian-Americans experienced similar disparities in lending practices, despite efforts by local banks to increase lending in minority and low-income neighborhoods.

"There are pervasive racial inequalities of all kinds," says Campen, noting that higher denial rates are not the only racial disparities in mortgage lending practices in Boston. The report "Changing Patterns IV: Mortgage Lending to Traditionally Underserved Borrowers and Neighborhoods in Greater Boston, 1990–2001" identifies several significant inequalities that Thomas Hollister, president and CEO of Citizens Bank of Massachusetts, calls "troubling." In addition to higher denial rates, minority households received a disproportionate share of mortgage loans. According to the 2000 census, African-Americans made up 21.4 percent of Boston's households, yet received only 11.5 percent of all 2001 loans, a percentage that rose slightly since 2000 but was still lower than any year in the 1990s. Latinos made up 10.8 percent of households and received 7.5 percent of all loans, the highest percentage given to Latino borrowers on record.

The report shows that minority borrowers received a lower portion of home purchase loans in 2001 than in any year during the 1990s. Campen says the issue now is figuring out what's changed in the last three years. One answer may lie in "Borrowing Trouble? III," the upcoming companion report to "Changing Patterns IV." In that report, Campen's findings reveal an increase in subprime lending in Boston and throughout Massachusetts, particularly to minority and low-income borrowers.

"Not all subprime lending is predatory or even bad," Campen says. Indeed, according to the Department of Housing and Urban Development, "subprime lending can and does serve a critical role in the nation's economy" by giving loans to applicants with blemishes in their credit histories. Though they are charged more at a higher rate, applicants may receive opportunities that may not have been otherwise available.

Yet a growing number of subprime loans are predatory and are given by out-of-state banks and mortgage companies who are not subject to Massachusetts regulations. In-state banks must adhere to the Massachusetts Community Reinvestment Act (CRA), which ensures banks serve the communities in which they have branches. Yet none of the top 18 subprime lenders, which include Option One (a subsidiary of H&R Block) and Ameriquest Mortgage Co., are Massachusetts based, and therefore do not have to adhere to Massachusetts CRA regulations. According to the Boston Globe, 73.5 percent of all home loans in Massachusetts were made by out-of-state lenders and mortgage companies. In Boston, subprime lending grew by 29 percent in 2001 and minorities receive a disproportionately large share of subprime refinance loans. African-Americans received over one-quarter (25.9 percent) of all subprime loans and Latinos received nearly one-sixth (15.7 percent), while whites received only 4.6 percent.

According to the report, neighborhoods with high occasions of subprime lending are often indicative of areas that are likely targets of predatory lenders. Subprime lending in minority neighborhoods was 7.1 times higher in mostly minority neighborhoods than in white neighborhoods in 2001.

"Because there isn't enough prime refinance lending going on, people are preyed upon by subprime refinance lending," Campen says.

MCBC hopes their reports will raise awareness about predatory lending. MCBC chairman Mark Primeau says that the reports should emphasize to local banks and community leaders the need to educate "homeowners to the high costs and risks of some refinance loans."

Image: Author Jim Campen, associate professor of economics. (Photo by Phyllis Ewen)