The largest U.S. banks gave expensive subprime mortgages twice as often to minorities than whites last year, according to a study of bank loan data released by a fair lending activist group on Monday.
The study, conducted by Inner City Press/Fair Finance Watch found that banks such as JPMorgan Chase, Citigroup, Bank of America, and Countrywide issued subprime loans to minorities more than twice as often as whites. At some institutions, the number of subprime loans issued increased, even amid a growing credit liquidity crisis.
“One of our most surprising findings was that the largest players just continued making subprime loans in a disparate way even as the industry collapsed around them. To us this means that they intend to continue this gouging of customers just with fewer competitors in the future,” said Matthew Lee executive director of the Bronx, New York-based group.
Officials at JPMorgan Chase and Countrywide could not be reached for comment.
A Bank of America spokesman said many factors go into pricing a loan, much of which may not be recorded in this data.
“We are in the process of analyzing our data, however we are confident that all the differences will be explained,” said Bank of America Spokesman Terry Francisco. “In general, we are very pleased with our 2007 performance. We increased the origination 20 percent across the board. In addition, 28 percent of our loans went to moderate and low income borrowers and 33 percent were to minority borrowers.”
The latest data showing subprime mortgages being extended disproportionately to minorities fits with historical patterns. Banks have often said these higher-priced loans reflect the greater risk lenders face in extending credit to borrowers with shaky credit histories.
“We consider each applicant by the same objective criteria, which are blind to race, ethnicity, gender and any other prohibited basis. These objective criteria include FICO scores, loan to value (LTV) ratios, debt to income (DTI) ratios and other key factors,” said Citi spokesman Mark Rodgers.
“Using these and other objective criteria allows us to set rates that are consistent with the risk profile of each borrower and gives millions of consumers the opportunity to own a home,” he said.
Lee, whose organization has filed a legal complaint with the Federal Reserve regarding its role in JPMorgan’s proposed acquisition of the failed investment bank Bear Stearns, called the regulators’ response to the subprime crisis “entirely inadequate.”
Under federal law, banks are required to disclose detailed lending data under the Home Mortgage Disclosure Act by March 1 of each year. The 2007 data, obtained by Lee’s group directly from each bank, will be officially released by the Federal Reserve in September.
It is the fourth year in which the data distinguishes which loans that are higher cost: the federally defined rate spread of 3.0 percentage points over the yield on Treasury securities of comparable duration on first lien loans and 5.0 percentage points on subordinate liens.
In the study, Inner City Press found that Citigroup in 2007 extended to African Americans these higher-cost loans above this rate spread 2.33 times more frequently than whites. Fully 109,511 of Citigroup’s 448,542 mortgages in 2007, or 24.41 percent, were high cost loans over the rate spread.
In the group’s analysis of the HMDA data, JPMorgan Chase, during 2007, extended to African Americans these costlier loans 2.44 times more frequently than whites. Among Latinos it was 1.6 times more frequent.
At JPMorgan Chase, the percentage of loans that were above this rate edged up to 20.96 percent in 2007 from 19.28 percent in 2006.
According to the Bronx-based fair lending group, Bank of America in 2007 extended African Americans to higher-cost loans 1.88 times more frequently than whites, and denied the applications to Latinos 1.62 times more frequently than whites.
“We are taking a deeper dive to determining what some of the factors may have been that drove pricing” said Francisco.
Meanwhile, Countrywide Financial, which Bank of America has applied to buy, extended to African Americans higher-cost loans 1.95 times more frequently than whites, and denied the applications of Latinos 1.53 times more frequently.
“Given Countrywide’s disparities and its ongoing foreclosure practices, the Federal Reserve should not allow Bank of America to acquire it has proposed,” Lee said. “The golden parachutes are just a form of impunity.”