August 2 2002


Unfair lending practices help perpetuate the homeownership gap

By Julianne Malveaux

Not a week goes by when I don’t get an e-mail from someone peddling home loans, or home-loan refinancing, on the Internet. The rates are going down, they scream, exclamation points all over the place. Loan guaranteed, they shout, casting the net as widely as they can to get me to respond. Since I’m a homeowner in an area that is gentrifying, with property values spiraling upward, I’m fresh meat for lenders looking for hot prospects.

With the mortgage interest rate down to 6.42 percent for 30-year loans, and even lower for shorter-term mortgages, financial planners say this is a great time to buy or to refinance. But, unlike me, too many African-American borrowers find the doors to conventional lending shut in their faces.

A new report from the Center for Community Change says that African Americans and Hispanics are disproportionately represented in the subprime home-refinance market. That means they are paying at least 1 to 6 more percentage points than their white counterparts pay. Data from 331 metropolitan areas show that while 17 percent of whites borrow money in the subprime market, nearly half (49 percent) of African Americans, 30 percent of Hispanics and 28 percent of Native Americans get subprime loans.

Alarmingly, the disparity actually grows for upper-income borrowers. Higher-income African-American homeowners do comparatively worse then their lower-income counterparts. Lower-income African Americans were only twice as likely to get subprime loans as whites, but upper-income African Americans were three times as likely to get subprime loans.

How can we explain this disparity? Most lenders say the subprime market is a function of the risk they take when they provide money to borrowers whose credits is not pristine. But Freddie Mac, one of the publicly chartered secondary mortgage-market enterprises, says that as many as 30 percent of those who get subprime mortgages could benefit from conventional mortgages and from great savings.

Further, in many cases the quality of your loan is a function of who you know. Some people with “good” credit end up with costly subprime products because they have had so many negative experiences with conventional lending that they shy away from seeking credit from them. Instead, they respond to the television and radio ads that seek them out, help them to consolidate their credit or improve their homes and charge them interest up the yin-yang.

This is important because homeownership is often the way that lower-and middle-income families amass wealth. A much higher proportion of whites possess homes that African Americans and Latinos, with 71 percent of white families owning their homes in 1999, but just 46.5 percent of African-American and 45.2 percent of Latino families owning theirs, according to census data.

The difference helps explain the wealth gap, and it has wide-ranging effects. Families that own homes have resources they can borrow against during financial difficulty, for tuition or for other needs. While the income gap has been narrowing, the wealth gap has not, and at least part of that has to do with the homeownership gap.

The American dream has always included homeownership. But many people of color can’t participate in the American dream except at high-interest, subprime rates. This inequality must end.

Julianne Malveaux is a Washington, D.C.-based economist and a nationally syndicated columnist. She can be reached at

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