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Home loans cost more for Indian borrowers

WASHINGTON, D.C. ? Being poor costs money.

When an Indian takes out a housing loan, he is twice as likely as the average American to pay much more for it and nearly three times as likely as the average white person, according to a new study sponsored by lobbying groups for minority housing financing. The problem is even worse in states with high Indian populations.

The findings, hardly surprising in themselves, confirm fears that Indians are targets for predatory lending, which gives them scarce financing at excessive cost.

American Indian borrowers were twice as likely to receive subprime mortgage or manufactured housing loans during 2000 as the national average, said an analysis of data by the National Community Reinvestment Coalition (NCRC). And they were nearly three times as likely to receive one of these higher-cost loans than the white population.

The data, released here by NCRC, the National American Indian Housing Council and the Housing Assistance Council, showed even higher proportions of subprime and manufactured housing loans to Natives in some individual states ? almost 79 percent in New Mexico, and 39 percent in South Dakota, for instance. The numbers refer only to home purchase mortgages, not refinancings.

The "subprime" market involves borrowers with less than perfect credit. Such loans are higher in cost because lenders price them higher to compensate for the perceived additional risk of losing their money to default. While not exactly equivalent to predatory lending, the subprime sector has generated a large share of the accusations of predatory practices, with abusive conditions targeted at Indians and other underserved populations.

The subprime numbers are even higher when you count lending by subprime lender The Associates to American Indians, as reported in the year 2000. The firm's new owner, Citigroup, has said, however, that the numbers The Associates reported to the government that year were overstated due to clerical error. Home Mortgage Disclosure Act data for 2001 will be released this summer.

The Associates reported $754 million in lending to American Indians in 2000 through four different units, making it number one in this market that year. But even without this entry, higher-cost subprime and manufactured housing loans went to 26.5 percent of Indians nationwide, compared to a national average of 13.2 percent and a white average of 10.4 percent.

In New Mexico, an astonishing 78.8 percent of Indians who received home loans that year got subprime or manufactured housing loans, compared to 28.1 percent for all residents of the state and 15.5 percent for whites. In South Dakota, the percentages were 39.1 percent for Indians, 18.4 percent overall, and 17.4 percent for whites.

NCRC used Department of Housing and Urban Development research on the subprime and manufactured housing markets. The study listed which lenders are specialists in these markets, meaning they did 50 percent or more of their volume there. It then added up the volumes those lenders (about 200) reported on their annual HMDA data and measured the aggregate against the total volume of mortgages reported to the government. This database was required by the 1990 Home Mortgage Disclosure Act.

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The non-profit coalition admitted the numbers are inexact, since many large lenders do big volumes of subprime lending, but aren't considered "specialists" by HUD because they did not do 50 percent or more.

Citigroup did not disclose to NCRC the precise amount of Indian lending by The Associates in 2000 (it bought the firm on Nov. 30 of that year). But the giant banking firm did provide a breakout of the number of Indian loans done through its units in 2001. They came to 721, through eight different entities. The Associates, now called Citifinancial Mortgage Co., is credited with just 50 loans.

"Clearly, not all subprime and manufactured home lenders are predatory; many are responsible lenders," said John Taylor, president of NCRC. "However, when subprime and manufactured home lenders dominate lending in a community, predatory lending is more likely as consumers perceive few alternatives to high interest rate loans."

Chester Carl, chairman of NAIHC, said the coalition research tallied with a survey conducted by his own non-profit organization. Sixty-five percent of its respondents reported being the victim of some kind of predatory practice. They reported paying interest rates of 18 percent, 22 percent and 25 percent. By comparison, the average interest rate on a mortgage bought by quasi-federal housing agency Freddie Mac currently is less than seven percent.

Carl presented the case of a Choctaw borrower from The Associates, who received a mortgage at 17.3 percent. Payments took up half of the family's total income.

The family owned the home free and clear before receiving the loan. Failure to keep up nearly cost the family the home through foreclosure.

Carl, a Navajo who also chairs that tribe's housing authority, repeated NAIHC's call for $1 billion in block-grant money to ease the continuing crisis in Indian housing.

Taylor called for the Federal Reserve Board to improve the quality of HMDA data in order to make it a better tool to screen for predatory and discriminatory lending. He said lenders should be required to report price information for all loans and to give an accounting for the amount of all loan fees.

He endorsed a proposal by the Fed requiring that telephone applicants be asked to supply race and gender, and also endorsed a proposal requiring them to disclose whether it is a first or second mortgage.

Taylor said that lending to women and minorities has increased since HMDA required in-person applications to break out these categories. Many people, however, decline to provide information on their ethnicity.

He also said lenders should report whether a loan was for home and land, or land alone. This data, he said, would give a better read on manufactured housing loans, which usually don't involve land sales.