SOURCE: ReutersPredatory lending aimed at racially segregated minority neighborhoods is now being blamed for the high rise in foreclosures that led to mass foreclosures that sparked 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.
Poorer minority areas became a focus of these practices in the 1990s 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 — 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 underserved by mainstream financial institutions,” the study says.
Redlining is the practice of denying or increasing the cost of services, such as banking and insurance, to residents in specific areas, often based on race.
The U.S. economy is still struggling with the effects of its longest recession since the 1930s, which was triggered in large part by the housing crisis, which was in part triggered by the crash of the subprime loan market.
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.
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.
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.
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MY TAKE: Are there lawyers for people who specifically fell victim to prey by these mortgage monsters? I know if I get injured by a doctor, there’s always a Brooklyn medical malpractice lawyer, or if I need Monmouth County municipal court attorney to assist me with family law matters, that’s available. I can even get a New Jersey child support lawyer to help me with my case in California. But what about people of color who may have been victims of scams on mortgage loans? Who do they turn to? I know the Bronx construction accidents lawyer is there to help the guy who falls off the ladder who’s building the home for which the loan was secured, but not sure where to go if I’m the mortgage holder.
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The tons of paperwork that may be needed by short-sale sellers and their agents give them plenty to think about besides being annoying. Even so, they need to make sure that they keep it for possible future use as well as pay attention to what is in the paperwork. That paperwork may be needed if circumstances cause the seller develops problems after the sale has taken place.
I guess this means that if you have a short sale AZ, you better be careful. Because I live in Arizona, I have heard that there is a lot of mortgage refinancing now because people just cannot afford their mortgages.
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