FOR IMMEDIATE RELEASE: April 3, 2002

SCHUMER ANNOUNCES NEW PROGRAM TO HELP BLACK NEW YORKERS OBTAIN HOME LOANS FROM BANKS INSTEAD OF COSTLY SUBPRIME LENDERS

New Study Shows Black Homeowners More than Four Times as Likely Than White Homeowners to Rely on Home Mortgage Loans From Expensive Subprime Lenders

43% of Black Homeowners Use Subprime Loans Compared to 10% of White Homeowners – Difference Can Mean As Much as $150,000 Over Life of a Mortgage

Senator, Leading NYC Ministers, NY Bankers Association Launch Citywide "HELP" Program to Provide Access to Conventional Loans For Black Homeowners Being Channeled into Vastly More Expensive Financing than White Homeowners with Comparable Incomes

US Senator Charles E. Schumer, a group of the city's leading ministers and the New York Bankers Association today launched a new citywide program – the Home Equity Lending Project (HELP) – to provide access to conventional loans and credit counseling for black homeowners who are being channeled into vastly more expensive financing than white homeowners with comparable incomes. HELP brings together banks and churches across the city to do two things: (1) increase access to conventional loans for residents of predominantly black communities; and (2) break down the years of mistrust that have prompted many black homeowners to seek loans from more expensive subprime lenders instead of conventional banks.

A new study released today by Schumer has found that homeowners in predominantly black New York City neighborhoods are more than four times as likely than homeowners in predominantly white neighborhoods to rely on home mortgage or refinance loans from non-conventional lenders that are far more expensive. The study, authored by the office of Senator Charles Schumer, reached the following conclusion: in the mortgage lending market, New York City is a city divided by race.

The study analyzed lending patterns in six sets of New York City neighborhoods nearly identical in income but different in race, discovering that black homeowners obtain loans from subprime (non-conventional) lenders in 43% of cases, compared to just 10% for white homeowners. In financial terms, the difference can be staggering. For a 30-year fixed mortgage of $150,000, the difference in total costs between a 7% prime rate from a conventional lender and a low subprime rate of 9% from a non-conventional lender is $75,232. For a higher-cost subprime loan at 11%, the cost is an additional $154,994–the original cost of the mortgage, often taking homeownership out of the reach for many who could otherwise afford mortgage payments.

"Of all the data we analyzed and studied over the last several years, the most interesting thing we've discovered, by far, isn't just that black homeowners are far more likely to rely on expensive, sometimes abusive subprime lenders, but that after years of mistrust and a legacy of discrimination, many black homeowners simply do not want to risk the humiliation of being turned down for a loan by the bank," Schumer said. "And as a result, so many black homeowners who are more than qualified to receive low interest loans from conventional lenders don't even apply. That's why the key is bringing together the ministers and the bankers so the banks can aggressively go into the communities, and case after case, day after day, make sure that people have access to the loans they need and deserve."

Schumer launched the HELP program last summer in two New York City neighborhoods: Southeast Queens and Central Brooklyn in conjunction with nine banks and the Allen AME and Bridge Street AME Churches. After eight months, Schumer, the ministers and the New York Bankers Association decided to expand the program citywide.

Through the HELP program, ministers inform their congregation of the program during Sunday services, providing information and materials about the program that have been supplied by participating banks. Parishioners interested in home purchase or refinance loan contact the program through a hotline – 1-877-297-7179 – staffed by the New York Bankers Association. The representative records the parishioner's information and forwards it to participating banks, which then contact each parishioner to initiate an application for loan origination. The program puts at least three banks into contact with each applicant, so that the borrower has the opportunity to comparison shop. Subsequently, a parishioner either receives a loan or, if his or her credit is impaired, the parishioner is provided credit counseling and taken through the steps necessary to qualify for a conventional loan.

The Schumer study found that black homeowners tend to rely on subprime lenders across income levels, with 44% of home mortgage and refinance loans coming from subprime lenders for lower and middle income black homeowners (compared to 16% and 15%, respectively, for whites) and 39% of home mortgage and refinance loans coming from subprime lenders for upper income black homeowners (compared to 9% for white homeowners). The study analyzed lending patterns in four Bronx neighborhoods, including Baychester, which is predominantly black, and Throgs Neck, which is predominantly white, finding that twice as many Baychester residents (34%) rely on subprime lenders than Throgs Neck residents (15%). The same proved true in two sets of neighborhoods in Queens – Laurelton residents, predominantly black, relied on subprime lenders in 36% of cases compared to just 8% in Bayside, which is predominantly white; St. Albans residents, predominantly black, relied on subprime lenders in 47% of cases compared to just 17% in predominantly white Glendale. In Brooklyn, the same proved true again, with 46% of East Flatbush residents, who are predominantly black, relying on subprime lenders compared to 14% of Sheepshead Bay residents; in Rugby, residents rely on subprime lenders in 39% of cases compared to 18% in Bensonhurst.

"If you look at one neighborhood in which pretty much everything is the same – incomes, education, jobs – but one neighborhood is predominantly white and another is predominantly black, you see a totally different picture," Schumer said. "Owning a home is part of the American dream, just like sending your children to college or being able to retire one day. Having to rely on subprime lenders who charge outrageously higher interest and fees makes the American dream unattainable for so many people who've worked and sacrificed to own a home. That's why the HELP program is so important."

The study also found that black applicants experienced far higher rejection rates from conventional lenders than white applicants. In 2000, low income black applicants were denied by conventional banks 30% of the time, compared to 19% for white applicants; middle income black applicants were denied 27% of the time, compared to 15% for white applicants; and high income black applicants were denied 26% of the time, compared to 12% for white applicants. In fact, black applicants with incomes greater than $67,440 were more likely to be rejected for a home purchase or refinance mortgage – a 26% denial rate – than white applicants with incomes that did not exceed $44,960 – a 19% denial rate. By offering credit counseling and helping prospective homeowners improve their credit scores, Schumer said that the HELP program would help bring down denial rates, citywide.

In addition to launching the HELP program, Schumer called for and unveiled several initiatives to combat predatory lending and increase access to conventional loans for black homeowners, including:

• Adoption of S. 1242, the "Consumer Credit Score Disclosure Act of 2001." This legislation introduced by Schumer and Senator Wayne Allard (R-WY), would require lenders to provide consumers with the credit score used to determine their creditworthiness as well as factors used to determine their score. This would empower consumers to "comparison shop" among lenders for the best possible interest rate.

• Adding statutory criminal penalties for predatory lending activities; this would provide prosecutors with the authority for to go after bad actors and stop predatory lending before it starts.

• Applying the Home Mortgage Disclosure Act to small business loans. Communities need businesses as well as residents, so by applying HMDA to small business loans, regulators would have a more complete picture of an institution's reinvestment in the community.

• Including loans of subprime affiliates and a "fair lending exam" in the Community Reinvestment Act exam process.

Schumer was joined by Edwin Reed, Allen AME Church, Rhonda Lewis, CEO, Bridge St. Development Corporation, Mike Smith, President, New York Bankers Association, Lucille McCleuen: President of the Harlem Congregation for Community Improvement, Mickey Heller: Christian Cultural Center and Revered Pledger, Brooklyn Tabernacle for Deliverance.

Click here for a copy of Schumer's report.

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