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Predatory Lending & Minorities

Predatory lending aimed at racially segregated minority neighborhoods led to mass foreclosures that fueled the U.S. housing crisis, according to a new study published in the American Sociological Review.

Predatory lending typically refers to loans that carry unreasonable fees, interest rates and payment requirements.

Or it can mean anyone who lends to a member of the officially designated victim classes and who expects to be paid back. Which is the meaning here.

Poorer minority areas became a focus of these practices in the 1990's with the growth of mortgage-backed securities, which enabled lenders to pool low and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.

The financial institutions likely to be found in minority areas tended to be predatory such as pawn shops, payday lenders and check cashing services that "charge high fees and usurious rates of interest," they said in the study.

"By definition, segregation creates minority dominant neighborhoods, which, given the legacy of redlining and institutional discrimination, continue to be under-served by mainstream financial institutions," the study says…Subprime lending refers to loans made to consumers with poor credit and others considered higher risk. They tend to have a higher interest rate than traditional loans.

So, by Reuters’ definition, any time money is loaned to people with bad credit at a higher rate than it is loaned to people with excellent credit, it is a "predatory" loan.

The study, which used data from the 100 largest U.S. metropolitan areas, found that living in a predominantly African-American area, and to a lesser extent Hispanic area, were "powerful predictors of foreclosures" in the nation. Clearly this is racism. The banks purposefully force blacks and Hispanics not to pay back their loans. They do not want money from black or brown people.

Even African-Americans with similar credit profiles and down-payment ratios to white borrowers were more likely to receive subprime loans, according to the study.

"As a result, from 1993 to 2000, the share of subprime mortgages going to households in minority neighborhoods rose from 2 to 18 percent," Massey and Rugh said.

They said the U.S. Civil Rights Act should be amended to create mechanisms that would uncover discrimination and penalize those who discriminated against minority borrowers.

Absolutely. There is no doubt that blacks and Hispanics must be loaned money at the lowest possible rate no matter what their credit rating or income level. Any other practice must be criminalized.