Black Women Bear Worst Brunt of Subprime Fallout, CDC Director Says

By Eric Smith

WHEEL OF FORTUNE: While credit scores once were used mainly for credit card and mortgage applications, they're now being tapped by potential employers and insurance agencies. -- Illustration By Philip Thompson

Minorities are feeling the brunt of the subprime lending fallout more than whites, a study by the nonprofit organization ACORN (Association of Community Organizations for Reform Now) revealed earlier this week.

"Foreclosure Exposure," a comprehensive look at adjustable-rate mortgage (ARM) loans in 172 metropolitan areas, shows that minorities - regardless of income - received a higher percentage of high-risk loans during the past decade and are at a higher risk of foreclosure.

Black homebuyers were 2.7 times and Hispanics were 2.3 times more likely to be given high-cost loans than whites nationwide, the study found.

In 2006, 70.6 percent - almost three out of four - home refinance loans made to blacks were high-cost loans. And 37.6 percent - or more than one out of four - home refinance loans made to Hispanics were high-cost loans.

Moreover, Memphis ranked No. 1 in the country for metro areas most at risk during this housing crisis with thousands of more ARMs locally about to reset to higher interest rates.

And that's the root of foreclosure woe as homeowners suddenly can't afford to keep their houses because the interest rate jumps and the monthly payment balloons.


'Wild, Wild West'

Those numbers don't surprise people like Steve Lockwood, executive director of the Frayser Community Development Corp. He recalled reading a lending study eight years ago that showed mortgage companies were granting more mortgage loans locally than banks.

"That really portended a lot of other things," he said. "It got us outside of the regulated CRA-type (Community Reinvestment Act of 1977) lending and into the Wild, Wild West. Little did we know how serious that was."

The seriousness has resulted in Memphis ranking among the top cities in the country for foreclosure. With 10,800 foreclosure filings during the first half of the year, Memphis is ninth among the nation's 100 largest metropolitan areas for foreclosures, according to Irvine, Calif.-based RealtyTrac Inc.

The RealtyTrac report provides the total number of properties entering some stage of foreclosure in each of the nation's 100 largest metropolitan areas.

Shelby County saw 6,677 first-run foreclosure notices between Jan. 1 and July 31, according to The Daily News Online, www.memphisdailynews.com. That total is up nearly 15 percent from the 5,814 first-run notices filed in the same period of 2006.

Foreclosure sales in Shelby County were 3,739 in the first seven months of 2007, up 11.4 percent from the same time a year ago.

Misinformation dissemination

Lockwood knows why minorities - and one subgroup in particular - are at a greater risk for foreclosure than whites.

"Subprime lending is targeted particularly at African-American women," Lockwood said. "It's not rocket science that shows you what neighborhoods have been hit hardest, because it's that confluence of where people are buying houses and the buyers are African-American women."

Lockwood conjectured that these consumers are being misinformed about the loan products they are being sold, coupled with predatory lending that is crippling communities everywhere.

And he doesn't have to look far to see the fallout from this fiasco. Frayser's 38127 ZIP, which perennially tops the foreclosures list, saw 558 foreclosure notices and 381 sales between January and July, according to The Daily News Online.

"About half of the loans made in Frayser in the last year or so were subprime loans," he said. "That's an extremely high number."

Dr. Phyllis Betts, director of the Center for Community Building and Neighborhood Action and a faculty member of the School of Urban Affairs and Public Policy at the University of Memphis, notes that the problem is widespread throughout the local area.

"We should expect short-term impact as lenders are unable to pass along subprime loans to the wary secondary mortgage market," she said. "In 2005, the latest year for which we have highly reliable data, 48 percent of mortgage loans in Shelby County were subprime, so this represents a great many buyers or homeowners who took out subprime home equity or refinance loans."

Make no assumptions

Experts agree change is needed, and it needs to begin with borrowers who were placed in subprime loans and would have qualified for more conventional mortgages. That means getting borrowers paired with local lenders, whom Betts said have less exposure than the national mortgage brokers.

"The challenge will be to link local lenders to borrowers who had become accustomed to relying on brokers - for a lot of reasons historical and current," Betts said. "There is little market penetration, for example, among African-American buyers on the part of local retail banks."

Betts warned that there's a catch: These special products require pre-purchase counseling and homeownership classes, and they sometimes require borrowers to work with counselors to repair their credit.

"If buyers are willing to make these commitments," Betts said, "once the shakeout is over the loan products on these terms will likely be available, which will be good both for the buyers and the neighborhoods in Memphis that have suffered from high foreclosure rates."

There has been some good news on the housing front. President George W. Bush announced plans last week to help homeowners who are in jeopardy of losing their homes to foreclosure because of high-cost loan products.

But Lockwood warned that it won't completely rid the country of lenders who prey on minorities or anyone uninformed about risky mortgages.

"It's going to change it, and it will probably lower the volume (of foreclosures), but I'm not ready to say that the problem will go away," Lockwood said. "Predators and other really evil people are very creative. For me to say that this is going to pass is assuming too much."