Lenders Maintain Racial Mortgage Gap

By: Alden K. LouryIn September, The Chicago Reporter revealed that African American homeowners in the Chicago metro area were nearly three times more likely to get “high-cost” loans than their white and Asian counterparts. Latinos were two times more likely to get high-cost loans than whites and Asians. A new Reporter analysis shows that the trends still hold, and that the region’s top 25 high-cost lenders are responsible for a significant portion of the racial gap.

In 2006, these companies provided 81 percent of the 88,315 high-cost loans granted in the Chicago metro area, compared to just 36 percent of the 195,748 prime-rate loans. These companies include some of the nation’s largest lenders, as well as smaller companies that specialize in high-cost or subprime loan products.

High-cost loans are home loans that carry interest rates at least three percentage points above the U.S. Treasury standard. Higher interest rates mean higher mortgage payments.

Among the local lenders is Countrywide Financial Corporation, the Chicago metro area’s top lender and top high-cost loan lender with 24,260 total loans, of which 6,851 were high-cost. While Asians and whites received high-cost loans from Countrywide about 20 percent of the time, more than half of the lender’s loans to African Americans were high-cost loans.

The area’s second-largest lender by volume—Wells Fargo & Co., with 15,199 total loans of which 3,923 were high-cost—also had wide racial disparities in high-cost lending. More than 60 percent of Wells Fargo’s loans to African Americans were high-cost compared to just 17.5 percent for whites and 10 percent for Asians.

African American homeowners were nearly four to six times as likely as their white and Asian counterparts to get high-cost loans from Washington Mutual and JPMorgan Chase Bank.

The list of 25 also includes smaller groups or non-traditional banks that focus primarily on subprime loans. ACC Capital Holdings Corporation, Fremont Investment & Loan, New Century Financial Corporation and GE Money Bank, all deemed “subprime” lenders by the federal government, combined to give more than 20,000 high-cost loans in the Chicago metro area during 2006.

About 94 percent of these companies’ loans were high-cost, and the companies granted those high-cost loans at similar levels to customers of all races and ethnicities. But these companies did much more of their business with African Americans and Latinos than the rest of the banks in the area.


High-cost and subprime lending products have become extremely popular in the last few years. First- and second-lien loans from subprime lenders in the Chicago metro area more than tripled—growing from nearly 27,000 in 2000 to nearly 102,000 in 2005.

But not all lenders have joined the subprime lending party. Some of the area’s largest and smallest banks rarely, if ever, grant high-cost loans, even in predominantly black and Latino communities.

LaSalle Bank, Bank of America and CitiGroup are among the area’s top 10 lenders by total home loan volume. None of the companies granted high-cost loans more than 3.3 percent of the time. However, the companies did business with black and Latino homeowners less often than the industry as a whole.

ShoreBank, Seaway National Bank and Illinois Service Federal are three community banks that have served Chicago’s black neighborhoods for decades. Combined, the banks granted 341 loans in 2006 and none of them were high-cost loans. In addition, 300 of the loans were to African Americans.

Another Chicago-area lender, Second Federal Savings & Loan, does more than 96 percent of its business among Latinos—but less than 12 percent of those loans were high-cost.

While the high-cost lending epidemic has spread throughout every major metropolitan area in the country, the Chicago metro area may be the best laboratory for study of the phenomenon. As The Chicago Reporter revealed in September, the Chicago metro area led the nation in high-cost loans each year from 2004 through 2006.

And high-cost loans have real consequences for borrowers. The higher interest rates result in higher monthly payments, sometimes hundreds of dollars more.

The difference between a 30-year mortgage for a $200,000 loan at 4.92 percent—the median U.S. Treasury rate during 2006—and a loan at three percentage points higher is nearly $400 a month.