Big Banks Still Practice Predatory Lending
Earl Ofari Hutchinson
The demonstration staged recently by ACORN, an economic justice activist group, on the steps of City Hall drew attention to the issue of predatory lending. This is the ugly practice in which greedy and unscrupulous lenders rip-off mostly poor, minority homeowners or prospective homebuyers in South Central Los Angeles. The lenders promise them quick cash, easy payments, and minimal paperwork to refinance or get a new home loan.
A report on mortgage lending based on figures from the Home Mortgage Disclosure Act found that so-called predatory lenders made nearly half of all mortgage loans to blacks and nearly one-quarter to Latinos in the area.
In many cases the ink on the borrower's contract is barely dry when they discover that the lender has dumped on them hidden fees, an escalating interest rate, and an unyielding repayment schedule. The inevitable happens. The homeowners who refinance miss a payment or two and the lender slaps a foreclosure notice on them.
Following the ACORN protest, 8th District L.A. City Councilman, Mark Ridley-Thomas directed the city attorney to draft an ordinance that makes it mandatory for lenders to disclose credit scores, home appraisals, fees, interest rates, and terms of payment to borrowers.
But this won't put these scam artists totally out of business. They still have the legal right to make loans to whomever they want and on whatever terms they want.
Greenlining, a San Francisco-based public advocacy group, repeatedly finds that California's eight largest banks still make an abysmally small number of conventional home loans to blacks and Latinos in South Central Los Angeles.
Every time the bankers are confronted with the paltry figures on inner city lending, they react with a mix of puzzlement, surprise, and knee-jerk outrage. Although Greenlining gets their figures from the Federal Reserve, some bankers claim that they are grossly misleading in that they ignore the number of government guaranteed loans and loans from non-profit lenders that minority home applicants receive. The bankers swear that they don't racially discriminate.
They are probably right. There is no evidence of deliberate racial bias by bankers in making loans. The bulk of the blame for the dismal lending figures must be heaped on skyrocketing housing costs, the higher credit risk of minority applicants, and the failure of some lenders to aggressively search for ways to help minority loan applicants qualify.
But whether banks don't lend in minority communities because of racial bias, or social and economic conditions they have no control over, their failure to make more loans give the rip-off lenders the gaping opening they need to do their dirty work.
Fortunately some bankers recognize that it is in their best interests to do something about this. Bank of America and Washington Mutual have implemented more flexible lending programs. They also have pledged to work with community groups in South-Central Los Angeles to pinpoint the lending problems of prospective homebuyers and devise programs to better meet their needs.
Still, the banks can do more. They should set firm target lending goals, reexamine their credit requirements, earmark more funds for loans in minority communities, and drastically upgrade their publicity efforts to better promote their programs and services in minority communities.
Earl Ofari Hutchinson is an author and radio talk show host on KPFK Radio 90.7 FM, Tuesdays, 7-8 PM.
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