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U.s. Fed Says Minorities Denied Home Loans More Often

Minority borrowers received higher- cost mortgages than whites more frequently when they refinanced their homes last year, continuing a trend of racial disparities in home-loan rates, the Federal Reserve said. Blacks received high-cost loans 52.8 percent of the time when they refinanced home loans last year, versus 49.3 percent in 2005, the Fed said in a report released today. Hispanic borrowers received high-cost refinancings 37.7 percent of the time, up from 33.8 percent in 2005. The rate for white borrowers was 25.7 percent last year, compared with 21 percent in 2005. ``The incidence of higher-priced lending for blacks and Hispanic white borrowers is notably greater than for non-Hispanic whites,'''' the Fed said in the report. ``Similar patterns are shown in racial and ethnic differences in denial rates.'''' The report''s release coincides with increased scrutiny in Congress of lending practices that contributed to the collapse of the subprime-mortgage market and prompted credit-market volatility in recent weeks. Black homeownership fell nearly 2 percentage points in the first six months of this year to 46.3 percent, compared with a half-percentage point drop for whites, to 75.4 percent. High-Cost Loans The report indicated little change in the percentage of minority homeowners who rely on expensive mortgage credit. Black borrowers had high-cost loans 53.7 percent of the time last year, versus 54.7 percent in 2005. For Hispanic borrowers, it was 46.6 percent last year versus 46.1 percent in 2005. Those figures weren''t adjusted for loan size, borrower''s income or geographic location. ``Differences by race and ethnicity remain stubborn, persistent, and significant,'''' said Josh Silver, a vice president of research and policy at the National Community Reinvestment Coalition in Washington. ``The differences are not narrowing. With all increased attention, why isn''t it?'''' The Fed economists writing the study cautioned that credit histories, loan-to-value and debt-to-income ratios may also explain the racial disparities. Their analysis of high-cost loans doesn''t include this information. ``As in past years, the Federal Reserve''s report is of limited utility in determining whether there are true disparities because it doesn''t have information about credit scores, which are the most significant explanatory variable in loan pricing,'''' said Andrew Sandler, a partner at Skadden, Arps, Slate, Meagher & Flom in Washington who leads the firm''s consumer financial services enforcement and litigation practice. Regulators Investigate Still, regulators have acknowledged that the data is disturbing and points to problems of how credit is distributed in some neighborhoods. The U.S. Department of Housing and Urban Development created a new division in July to handle what officials described as a ``record number'''' of investigations into discriminatory lending. The new figures are in line with trends bank regulators have noted since they began publishing information on the demography of high-cost loans in 2004. Banks are required to report the race of the borrower for any mortgage with a cost of 3 percentage points over a corresponding Treasury note or bond of similar maturity and five percentage points on a second lien. Homeownership rates were lowest among blacks in the second quarter of 2007 at 46.3 percent, compared with 50 percent among Hispanics and 75.4 percent among whites, according to U.S. Census Bureau data. Justice Department The Fed findings follow a July report that the central bank would refer five lending-discrimination cases to the Justice Department for investigation during the first half of 2007, up from two cases in all of 2006. All U.S. bank regulators have independent enforcement authority to censure banks for unfair lending practices. Since the data on race and high-cost loans became available in 2004, the Fed hasn''t brought a case against any of the 901 banks it sction could jeopardize the Justice Department''s investigations. The number of Americans who may lose their homes because they couldn''t make payments reached a record in the second quarter, the Mortgage Bankers Association said in a survey released Sept. 6. Delinquency rates on subprime loans rose to 14.8 percent in the second quarter, a five-year high. Foreclosure rates on subprime mortgages rose to 5.52 percent in the quarter ending in June, a four-year high. Lenders are required to report public-loan data under the Home Mortgage Disclosure Act, including the number of denied mortgage applications and the race, gender and income of applicants and borrowers. The government uses the information to evaluate whether lenders are complying with fair-lending laws.

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