Did Minorities Get Submarined By The Sub-Prime Mortgages?
Tuesday, July 22, 2008SUSIE GHARIB: A proposed White House plan to backstop mortgage giants Fannie Mae and Freddie Mac could cost American taxpayers $25 billion. That's according to a new report from the Congressional Budget Office, which puts the likelihood of such a bailout at less than 50 percent. At a speech in New York today, Treasury Secretary Hank Paulson stressed the importance of restoring confidence in Fannie and Freddie. Paulson said they play a vital role in how fast the U.S. housing market recovers and Fannie and Freddie's health is critical to calming volatile financial markets.
HENRY PAULSON, TREASURY SECRETARY: The sooner we work through the housing correction, the sooner home prices will stabilize and uncertainty about the values of mortgage-related assets will be more easily determined. So now, more than ever, we need Fannie and Freddie out there financing mortgages.
KANGAS: Meanwhile, the latest data from Fannie and Freddie's regulator, the Office of Federal Housing Enterprise Oversight, show home prices keep heading lower. Prices fell three-tenths of a percent from April to May, down almost 5 percent year over year. Falling home prices have been tied to the meltdown in the sub-prime mortgage market. As Stephanie Dhue reports, now there are questions about whether those loans targeted minority buyers.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: With millions of homeowners at risk of foreclosure, the Neighborhood Assistance Corporation of America, a non-profit, set up this mobile servicing operation in Washington to help struggling borrowers adjust their loans. Here, counselors work with borrowers and servicers to keep people in their homes. Paul Cato came to work out a mortgage on his D.C. condo.
PAUL CATO, WASHINGTON, DC HOMEOWNER: I had an interest-only loan-- interest-only loan, wasn't paying anything toward principle, insurance, anything. We was able to negotiate with my servicer an interest rate that I could live with.
DHUE: Cato says when he took out the mortgage two years ago, the interest-only loan was the only product he was offered. CATO: They give me no other option. They just told me, you know, take it or leave it.
DHUE: Nationwide, African-Americans and Hispanics hold twice as many sub-prime loans as whites. Sub-prime loans are also concentrated in minority neighborhoods. George Washington University sociologist Gregory Squires has researched sub-prime loans issued around the country. He says borrowers' credit worthiness doesn't explain the disparity.
GREGORY SQUIRES, SOCIOLOGIST, GEORGE WASHINGTON UNIVERSITY: There's now statistical evidence that shows that even after you take into consideration economic factors like income and credit rating, that there's still a racial effect.
DHUE: The mortgage industry says sub-prime loans were given to people with low income and poor credit, regardless of race. A Federal Reserve study found minority communities have less access to traditional lenders, but Squires says there's more to it than that.
SQUIRES: If minority borrowers are being steered to high-priced services and whites aren't, this doesn't explain away the problem of discrimination in markets; it helps us explain the discrimination that's going on.
DHUE: NACA President Bruce Marks blames mortgage brokers for putting people in unsustainable loans and blames investment bankers for buying those loans without asking questions. Marks thinks the foreclosure problem is widespread.
BRUCE MARKS, NEIGHBORHOOD ASSISTANCE CORPORATION OF AMERICA: They targeted people who were the most desperate for an affordable mortgage, most desperate for homeownership. So, yes, you see a disproportionate of African-American and Hispanic homeowners, but you also see the whole range of homeowners here.
DHUE: The Federal Reserve has moved to curb sub-prime lending abuses, issuing new rules governing those loans and a dozen states have also passed legislation to crack down on predatory mortgage practices. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
