KEVIN CUFF
‘So much assumption’

Borrowers seeking a home loan in Bay State metropolitan areas in 2006 had at least a one-in-five chance of getting it at a high cost, according to Foreclosure Exposure, a study of lending in 172 U.S. metropolitan areas released last week by the Association of Community Organizations for Reform Now.

Such borrowers are more likely to be lower-income and have fewer resources to cope with adjustable-rate loans’ rising interest payments and the foreclosures that often result, the New Orleans-based nonprofit group said. They are also more likely to be minorities, the study found.

Maude Hurd, ACORN’s national president and a Dorchester resident, said ACORN’s studies have shown for years that race and income disparities in the home mortgage industry “have been a major issue for a long time.”

Liz Wolff, the group’s national research director, said this year’s most “dramatic” finding is how high the percentage of high-cost loans grew between 2005 and 2006.

For example, in the Boston-Quincy metropolitan area, 32.4 percent of refinance loans and 27.7 percent of home purchase loans were high-cost in 2006, the report found. In the same region, 23.4 percent of refinance loans and 22.4 percent of purchase loans were high-cost in 2005.

ACORN’s report is based on data that 363 lenders in the United States, owned by 19 of the largest mortgage companies and banks in the nation, prepared as required by the Home Mortgage Disclosure Act and provided to ACORN.

It is the group’s 15th annual report based on similar data. The Federal Reserve Board, which promulgates HMDA, releases official data it has reviewed each September.

HMDA, a 1975 federal law, requires most metropolitan-area mortgage lenders to report their decisions on loan applications, in addition to the income, race, sex and ethnicity of the applicant. Since 2004, it has required that pricing information on all primary mortgages issued for owner-occupied single-family homes at a “high cost” be included. The federal definition of high-cost loans is those on which the annual percentage rate is 3 or more points higher than the interest rate on 30-year U.S. Treasury bonds.

High-cost loans include adjustable-rate loans with low initial “teaser” rates, because the APR takes into account the eventual loan-interest rate, as well as points and fees.

Lenders who provided information to ACORN included Ameriquest parent ACC Capital, Bank of America, Bear Stearns, Chase, Citi, Countrywide, National City, New Century, Wachovia, Washington Mutual and Wells Fargo.

Black or Latino borrowers got fewer loans overall and were significantly more likely to get high-cost loans than white borrowers, ACORN found. Refinance borrowers also were more likely to get a high-cost loan than purchase borrowers.

For example, of 17,266 refinance loans made in the Boston-Quincy metropolitan area last year, only 2,996 were made to minorities. Within those, of the 1,927 loans made to black borrowers, 47.4 percent were high-cost. Of the 1,069 made to Latinos, 42.9 percent were high-cost.

Only 29.4 percent of the 11,022 loans made to white borrowers were high-cost.

About 3,250 loans were made to borrowers who were from other racial or ethnic groups or who did not declare their race.

More than two out of five loans taken out in the Springfield metropolitan area last year were high-cost, giving it the dubious distinction of being the only Massachusetts region to have that many borrowers who received high-cost loans.

Overall, however, the study found that Massachusetts borrowers were less at risk of getting a high-cost loan than their counterparts in Southern and Midwestern states.

‘Easy Money’

Wolff blamed high-cost lending on the desire for “easy money.” She placed the blame mostly on loan securitizers.

“From what we understand, a lot of the securitizers of these mortgages said, ‘give us more, give us more,'” she said. “A lot of people were making money in the process, but homeowners and investors are going to be in trouble.”

Chris Leonard, campaign director for ACORN’s Massachusetts office, said he thinks the finding that minorities get more high-cost loans isn’t necessarily about lender racism.

“I don’t think it’s so much that they’re racist,” he said. “It’s more complicated.”

Subprime lenders and predatory lenders – whose loans often end up being higher-cost – came in to fill a void when they found communities in which people tended not to trust banks, he suggested.

Massachusetts Mortgage Bankers Association Executive Director Kevin Cuff agreed that the matter is complex.

“There’s so much assumption that we’re racist,” he said. “But nothing could be further from the truth.”

One important factor that ACORN’s and others’ studies have left out of their reports is lenders’ stated reasons for denying the loans, Cuff said.

“HMDA data shows reasons for denial,” and lenders are allowed to check off up to three of about a half-dozen of them, he said. The reasons include the borrower’s credit history and debt-to-income ratio, and how much money he or she is able to put down.

Cuff said the U.S. lending system is based on risk, not race.

“Fannie Mae, Freddie Mac, the Federal Home Loan Bank Â… they are all participants in the modern-day mortgage system of risk-based pricing,” he said. “Some people Â… just don’t see that there ought to be a pricing difference between higher and lower risk.”

Jim Campen, a University of Massachusetts economics professor emeritus, board member of the Massachusetts Affordable Housing Alliance and co-author of a March MAHA study that also found minorities get high-cost loans more often, said after that study was released he would have been surprised if it had not found disparities.

“There’s such massive discrimination in other major industries, like housing and health care, it would be astounding not to see it in the mortgage industry too,” he said at the time.

Campen said he preferred wait for official HMDA data is released before commenting upon it. He said the initial reports could contain detail errors, especially those filed by some subprime lenders that were going bankrupt early this year even as they were filing the reports.

But in general, Campen said, he’d expect 2005 and 2006 data to show something similar.

“It’s 2007 that will be quite different, because of all that’s been happening in the market.”

In conjunction with the release of its report, ACORN staged a protest on Sept. 5 on behalf of member Deborah Redrick, a 56-year-old Dorchester woman who refinanced her home in 2001 through a broker who was handing out fliers in her church.

The $409,000 loan, which was made by GMAC based on false information about her assets that the broker provided, Redrick said, is now held by New York-based Lehman Bros., which to date has refused to restructure it. Redrick, meanwhile, said she had to leave her job as a baggage handler at American Airlines in December because she is ill with breast cancer. She said she cashed out her 401(k) to make payments on the mortgage after the refinance caused her monthly payments to go up from $1,475 to $1,872 per month. The payments, Redrick added, are expected to rise to $3,500 by 2009.

“I’m just asking for a little mercy,” she said.

About two dozen ACORN members picketed inside the Boston office of Lehman Bros., located at 125 High St., until officials there called the police and agreed to fax Redrick’s request to Richard S. Fuld Jr., the investment bank’s chairman and chief executive officer. Lehman Bros. declined further comment.

Redrick obtained a 60-day stay from the state Division of Banks in July while she attempted to work out the loan on her Norfolk Street home. Now, she said, Lehman Bros. has given her through Nov. 9 to sell it so they can recoup the funds.