New York's Senator
CHARLES E. SCHUMER

FOR IMMEDIATE RELEASE April 9, 2000

Schumer Survey of Mortgage and Refinance Lending Patterns Shows Shocking Disparity Between Black and White Neighborhoods

First-Time Ever Analyzed HUD Data Shows Black Neighborhoods Six Times as Likely to Rely on Predatory Lenders as White Neighborhoods;

High Income Blacks Rejected for Mortgages from Conventional Banks More Often than Low Income Whites

Schumer Unveils Legislation to Rein in Predatory Lenders; Challenges Conventional
Banks to Become a Greater Presence in Minority Neighborhoods

Conventional banking institutions that offer home mortgages and refinance loans have little presence in New York's black neighborhoods even if the median income of those neighborhoods is well above the city average, while these same lending institutions have a strong presence in comparable white neighborhoods, Senator Charles Schumer reported today. Using raw data obtained under the Home Mortgage Disclosure Act, Schumer also showed that black neighborhoods are six times as likely as white neighborhoods to rely on subprime lending institutions which charge much higher rates and origination fees than conventional banks for home and refinance loans, and often use predatory practices to attract new borrowers.

"As far as New York's lending institutions are concerned, blacks and whites in New York City may as well be living on different planets," said Schumer. "The lending patterns in black and white New York City neighborhoods are practically polar opposites. It is disturbing that professional black families in thriving neighborhoods even have to consider going to a subprime lender that charges higher rates to buy a home."

Schumer found that in predominantly black neighborhoods, more than half of the home purchase and refinance loans were issued by companies who specialize in subprime lending like FHB Funding, Delta Funding, Champion Mortgage, and the Money Store, compared to less than 10% in white neighborhoods. Subprime lenders offer loans with high rates and fees to individuals whose credit ratings are considered less than prime, or "A." In addition, Schumer revealed that blacks at all income levels were far more likely to be denied a loan from a conventional bank than whites.

Schumer also selected six white and six black neighborhoods of comparable income levels in Brooklyn, Queens and the Bronx and compared the lending patterns, which he called "the difference between night and day."

In the six black neighborhoods, 26% of home purchase and refinance applicants were rejected for a loan at a conventional bank compared to 14% for applicants in the six white neighborhoods. 51% of the loans issued in these black neighborhoods were issued by subprime lenders compared to only 13% in the white neighborhoods.

1. In the Bronx, 40% of the home and refinance loans in the predominantly black upper middle class neighborhood of Baychester ($48,684 average income*) were issued by subprime lenders compared to 14% in Throgs Neck ($50,069), a comparable white neighborhood. In the black working class section of Gun Hill ($34,915), 49% of the loans were issued by subprime lenders compared to 24% in the comparable white neighborhood of Morris Park ($35,100).
   
2. In Queens, 47% of the home and refinance loans in the predominantly black upper middle class neighborhood of Laurelton ($63,527) were issued by subprime lenders compared to 8% in Bayside ($57,212), a comparable white neighborhood. In the black working class section of St. Albans ($34,049), 63% of the loans were issued by subprime lenders compared to 23% in the comparable white neighborhood of Glendale ($33,684).
   
3. In Brooklyn, 51% of the home and refinance loans in the predominantly black upper middle class neighborhood of East Flatbush ($60,010) were issued by subprime lenders compared to 20% in Sheepshead Bay ($58,230), a comparable white neighborhood. In the black working class section of Rugby ($33,502), 65% of the loans were issued by subprime lenders compared to 13% in the comparable white neighborhood of Bensonhurst ($33,163).

*(Median family income from 1990 census.)

"These neighborhoods have virtually identical economic characteristics but are seen by banks and predatory lenders in a completely different light," said Schumer.

Schumer acknowledged that the subprime lending market does serve a necessary and useful function in that it provides access to credit for individuals who would otherwise not qualify for it. However, published reports have cited subprime lenders for repeated and alarming abusive and predatory practices that have caused families to lose their homes to foreclosure. Typified by deceptive and manipulative tactics targeted toward vulnerable groups predatory lenders will create costly and unnecessary charges to reduce the homeowner's equity in their house, add superfluous insurance items to the monthly payment, contain penalties for mortgage prepayment, carry huge balloon payments at the end of the loan period, and charge steep origination fees in the form of points and closing costs.

"Anyone who has bought a home knows how confusing the process can be even from a conventional bank. For the predatory lender, confusion is their chief ally. They devise confusing loan agreements that are designed to generate foreclosures. They are hijacking the American Dream," Schumer said.
Schumer's study analyzed information from nearly 240,000 1998 home loan and refinance applications in New York City which were supplied under the Home Mortgage Disclosure Act to the U.S. Department of Housing and Urban Development. Schumer reported that subprime lending has flourished in New York mostly due to loans made in minority neighborhoods.

1. Between 1993 and 1998, the number of home and refinance loans issued by subprime lenders to New Yorkers more than tripled mostly because subprime loans in black neighborhoods increased seven-fold.
   
2. Home purchase and refinance loans from conventional banks increased by 3% citywide over the same period.

(See attached report.)

CAPITAL ACCESS:
LENDING PATTERNS IN BLACK AND WHITE NEIGHBORHOODS TELL A TALE OF TWO CITIES

One of the most important factors for the health of a neighborhood is the ability of residents to gain access to capital to buy a home. In New York City, as in many locations, there are two major types of private lending institutions that offer mortgages. The first, a conventional bank, is the route that most families take to purchase a mortgage. The second, subprime lenders, offer mortgage and refinance loans to those with a weaker credit rating who, presumably, cannot attain a loan from a conventional bank.

Subprime lenders charge higher upfront fees and higher interest rates to hedge the risk of lending to borrowers who have lower credit ratings. In recent years the number of subprime loans has increased dramatically in New York City, particularly in predominantly black neighborhoods. At the same time, predatory lending practices and widespread abuses by subprime lenders have led families to foreclose on their mortgages and lose their homes.

The Schumer study analyzed 239,502 New York City mortgage and refinance 1998 loan applications by race, neighborhood, income and lender. Those applications resulted in 132,293 loan originations, 40,856 loan denials, and 66,353 applications that were withdrawn by the applicant. Citywide, five out of six home mortgage and refinance loans were issued by conventional banks. But the lending patterns in the City's black and white neighborhoods were diametrically opposite.

Denial rates at conventional banks for blacks were double those for whites, and even a black family with annual income above $60,000 was more likely to be rejected for a home loan from a conventional bank than a white family with annual income below $40,000. In addition, expensive and often predatory subprime lending has flourished in predominantly black neighborhoods to the point where it is more common for a subprime lender to issue a loan in a predominantly black neighborhood than a conventional bank.

Schumer also compared the lending patterns in six white and six black neighborhoods with similar economic characteristics in Queens (Laurelton and Bayside, St. Albans and Glendale), Brooklyn (East Flatbush and Sheepshead Bay, Rugby and Bensonhurst) and the Bronx (Baychester and Throgs Neck, Gun Hill and Morris Park).

Subprime Lending in New York City's Black and White Neighborhoods

Black neighborhoods of all income levels are six times as likely as white neighborhoods to rely on subprime lenders such as Delta Funding, FHB, Greenpoint, and Champion for home mortgages and refinances.

1. 55.2% of the home mortgage and refinance loans issued in New York City's predominantly black neighborhoods were issued by subprime lenders (6,072 of 10,994 loans).
   
2. In predominantly white New York City neighborhoods only 9.1% of home mortgage and refinance loans were issued by subprime lenders (5,171 of 56,753 loans).

Conventional Banks and Lending Patterns Among Black and White Applicants

Black applicants for a mortgage or refinance loan are nearly twice as likely to be denied a loan at a conventional bank than a white applicant (21.6% denial rate for blacks compared to 11.4% for whites). All across the income spectrum, black applicants are significantly more likely to be denied a loan at a conventional bank than whites. In fact, black applicants with incomes greater than $59,760 are more likely to be rejected for a mortgage or refinance loan (20.0% denial rate) than white borrowers with incomes less than $39,840 (17.2% denial rate).

1. Denial rates for mortgages and refinance loans from conventional banks among New York City blacks with incomes greater than $59,760 (120% of area median income) were 20.0% compared to 10.1% for comparable whites.
   
2. Denial rates for mortgages and refinance loans from conventional banks among New York City blacks with incomes between $39,840 and $59,760 (80% to 120% of area median income) were 21.4% compared to 14.2% for comparable whites.
   
3. Denial rates for mortgages and refinance loans from conventional banks among New York City blacks with incomes below $39,840 (80% of area median income) were 26.5% compared to 17.2% for comparable whites.

The Leading Subprime Lenders in New York and Where they Make their Loans

Three of the five highest volume subprime lenders in New York make the majority of their loans to predominantly black neighborhoods.

Subprime LenderOriginations*% of Loans in Pred. Black Neigh.

FHB Funding Corp. 4,80869.5%
Delta Funding Corp. 2,39378.5%
Greenpoint Bank 1,79236.4%
Champion Mortgage Co. 83342.4%
Ameriquest Mortgage 67764.1%

*Refinance Loans Only (1998)

notes about sources:

All loan data was supplied by the Department of Housing and Urban Development through the Home Mortgage Disclosure Act disclosure requirements.
The Census Bureau defines a predominantly white census tract as one with a white population of at least 85%.
A predominantly black census tract is defined as one with a black population of at least 75%.
The data deliberately excludes home and refinance loans made through federal government agencies such as the Federal Housing Administration, Rural Housing Service and the Veterans Administration

12 New York Neighborhoods; 6 Black and 6 White:
Similar Economic Characteristics, Lending Patterns Polar Opposites

Using data from the Census Bureau combined with 1998 lending data supplied through the Home Mortgage Discrimination Act, Schumer compared the lending patterns of 12 neighborhoods in the Bronx, Brooklyn and Queens. In each of the three boroughs, Schumer compared two predominantly black and two predominantly white neighborhoods with similar economic characteristics -- a working class neighborhood with an average income slightly below the New York City area median, and an upper middle class neighborhood with an average income well above the area median.

In the six black neighborhoods, 51% of the loans were issued by subprime lenders (540 of 1,061) compared to 13% in the six white neighborhoods (219 of 1,648).

And in every neighborhood except one, mortgage application denial rates at conventional banks in black neighborhoods far exceeded denial rates in white neighborhoods. In the six black neighborhoods, 26% of the loan applications at conventional banks resulted in denials (281 of 1,062) compared to 14% in the six white neighborhoods (288 of 2,023).

The Bronx

Baychester - Predominantly Black, Upper Middle Class Neighborhood ($48,684*)

1. 40% of neighborhood home and refinance loans issued by subprime lenders (130 of 324)
   
2. Loan denial rates from conventional banks were 25% (86 of 351)

* Median family income from 1990 Census