Racial Gap in Loans Is High in State

WASHINGTON —  A racial disparity in mortgage lending rates appears to be sharper in Los Angeles and other California metropolitan areas than the rest of the country, according to an analysis of federal data to be released today.

The study by the Assn. of Community Organizations for Reform Now, an advocacy group for the poor, looked at the percentage of higher-cost loans issued in minority communities compared with nonminority neighborhoods in the same metropolitan area.

Residents of predominantly minority districts in the Los Angeles metro area were more than nine times more likely to get high-cost loans to refinance their homes than residents of predominantly white communities -- the largest gap, proportionally, in all of the 125 metropolitan areas studied.

Nationally, residents of minority communities were 1.7 times more likely to have such loans than borrowers in nearby white neighborhoods.

The metro areas surrounding Oakland and Santa Ana followed Los Angeles in the disparity ratio, with San Francisco at No. 5 and San Jose at No. 6.

California’s high housing costs are probably one reason behind the findings, said Raphael W. Bostic, a former economist for the Federal Reserve now at USC, who was not involved in the study.

Mortgage lenders use a variety of factors to determine whether borrowers must take out so-called sub-prime loans, which charge higher interest than cheaper prime loans. Among those factors are the borrower’s income compared with the amount of debt -- a gulf that can be wide in regions such as Los Angeles and the Bay Area, where housing prices, and thus loan amounts, have risen much faster than incomes.

“If you have lower income, you don’t necessarily qualify for the prime mortgage,” Bostic said.

To compile the report, the advocacy group analyzed lending statistics reported this year under the Home Mortgage Disclosure Act. Researchers defined minority communities as census tracts where at least 50% of the population was nonwhite, and white communities as areas where the minority population was under 20%.

The Federal Reserve, in its own study of the disclosure act data released this month, determined that African Americans and Hispanics were far more likely to get sub-prime loans than whites and said the gap could not be fully explained by factors such as income.

Valerie Coffin, ACORN’s director of fair housing and author of the report, didn’t rule out the possibility that housing costs were a factor in the disparity found by her group’s analysis. But Coffin said the wide gap in the frequency of sub-prime loans within the same metropolitan areas also might be evidence that sub-prime lenders were targeting minority communities in their marketing pushes.

An industry spokesman defended lenders’ conduct in the expensive housing markets of California, a state that is home to some of the nation’s largest providers of sub-prime mortgages.

“If they’re trying to prove that there’s discrimination going on, we reject that on its face,” said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn.

The federal loan data do not include information about borrowers’ creditworthiness and other basic factors that would provide a more complete picture of the lending process, Hobbs said.

The nation’s two largest sub-prime mortgage companies operate nationally but are based in Orange County, and their financial reports indicate they do an outsized share of their business in the state.

The largest sub-prime lender, Ameriquest Capital Corp. in Orange, said California loans made up 27% of its total home lending in 2004, up from 24% in 2002. No other state represented more than 10%. The company’s subsidiaries include Ameriquest Mortgage Co. and Argent Mortgage Co.

The second-largest sub-prime lender, New Century Financial Corp. in Irvine, made 40% of its loans in California last year.

In responding to charges of predatory lending practices, the industry has often described the emergence of the higher-cost loan market as a boon to individuals who once would have been forced to stand on the sidelines with no credit at all.

“The industry is working its tail off to make sure that everyone gets that dream of home ownership,” Hobbs said Wednesday.

ACORN, however, said its study raised concerns that minority group members might be paying unfairly high interest rates and thousands of dollars in extra upfront costs by being pushed into refinancing their homes in the sub-prime market. Refinance loans make up a dominant share of the market for high-cost loans -- 75% in Los Angeles, according to ACORN.

“To strengthen our communities, we need equal access to fairly priced loans,” Helen Coleman, an ACORN official in Los Angeles, said in a statement. “Increases in home ownership can help stabilize families and communities, but not if home equity is drained away by unfair loans.”

Allen Fishbein, director of Housing and Credit Policy at the Consumer Federation of America, said he believed the federal housing data showed that “at the very least, this market is working to the disadvantage of minorities.”

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The loan gap

A new study compares the percentage of higher-cost loans in minority communities with that of nonminority neighborhoods within the same metro areas. L.A. had the highest disparity rate of all the areas studied, with minority communities here 9.3 times more likely to get higher-cost loans to refinance their homes than residents of a nearby white-majority neighborhood.

*--* Percentage of higher-cost loans In mostly In mostly white minority Disparity areas areas rate Los Angeles-Long 1.4% 12.8% 9.3 times Beach-Glendale Oakland-Fremont-Hayward 1.1 7.8 7.2 Santa Ana-Anaheim-Irvine 1.3 8.8 6.9 Bridgeport-Stamford-Norwalk, 4.9 27.6 5.6 Conn. San Francisco-San Mateo-Redwood City 0.7 3.8 5.4 San Jose-Sunnyvale-Santa 0.6 2.9 5.3 Clara Albuquerque 5.7 27 4.7 Austin-Round Rock, Texas 8.0 34.4 4.3

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Source: Assn. of Community Organizations for Reform Now

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Times staff writer E. Scott Reckard in Orange County contributed to this report.