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Housing Crisis Fueled by Racial Predatory Lending

A study released today in the American Sociological Review reveals that predatory lending focused on minority neighborhoods played a significant role in the foreclosure crisis. The study was conducted by Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and graduate student Jacob Rugh.

The study surveyed 100 metro areas and discovered that minority neighborhoods were an easy target for predatory lending, due to their lack of traditional banking services. Also, lenders offered homebuyers subprime mortgages even though they qualified for prime mortgages more often in black and Hispanic neighborhoods than in white neighborhoods. Further, lenders more often increased fees and included payment requirements in minority neighborhoods than in white neighborhoods.

As a result, subprime mortgages going to homeowners in minority neighborhoods increased from 2 to 18 percent between 1993 and 2000. Further, the study states that racial composition of a neighborhood has now become a "powerful predictor" of the neighborhood's foreclosure rate.

Also, the study focused on predatory lenders such as pawnshops, payday lenders and check cashing services. These businesses are commonly found in minority communities, and offer loans with unreasonable interest rates, fees and payment requirements.

The researchers suggested an amendment to the Civil Rights Act that would make discriminatory lenders subject to penalties.

This study comes after a report released by the Center for Responsible Lending revealed that black low-income borrowers are 60 percent more likely to be foreclosed on than white low-income borrowers. Even wealthy minorities faced discrimination, as high-income black borrowers are 80 percent more likely to be foreclosed on than white borrowers.

Source: The Washington Independent "The Racial Politics of Foreclosure" 10/4/10

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