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Predatory lending study: Indians are getting ripped off

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NEW ORLEANS - A lot of people in Indian country think mortgage lenders are ripping them off.

More than half the respondents to a survey by the National American Indian Housing Council and the National Community Reinvestment Corp. said they had been the recipient of a "high-cost" mortgage or believed they knew someone who had been.

Thirty-year fixed-rate mortgages are averaging 5.21 percent currently, according to mortgage agency Freddie Mac, which tracks rates weekly.

The survey was released at NAIHC's recent annual convention in New Orleans. The two groups conceded that the 37 respondents to their survey (mostly Indian housing professionals) were less than what was needed for scientific results, but said their anecdotes are indicative of a high level of predatory mortgage lending in Indian country.

The interest rate on one loan reported, for instance, was 30 percent, and the average of those reported abusive loans was 15.3 percent.

The two Washington, DC-based nonprofits backed up their anecdotes with an NCRC analysis of 2001 Home Mortgage Disclosure Act data which indicated that 19.5 percent of Indians who received "purchase" (as opposed to refinanced) single-family mortgages that year got high cost "subprime" or manufactured housing loans, compared to 9.6 percent for whites.

And in individual states with big Indian populations like South Dakota and New Mexico, the disparities were even higher, the groups reported. In New Mexico, 63.8 percent of Natives got the high-cost loans, versus 9.6 percent of whites, and in South Dakota, 34.8 percent of Natives got subprime/manufactured housing loans, three times the white ratio.

Those numbers, while high, were actually down from the results of the 2000 HMDA surveys, which all mortgages lenders are required to submit by law. In 2000, 26.5 percent of Native borrowers got the high-cost mortgages nationwide, 78.8 percent did in New Mexico, and 39.1 percent did in South Dakota, according to NCRC.

The 30 percent loan reported was made nine years ago when rates were higher, but it would have been an exorbitant amount then and now, after paying all these years, the borrower still owes $26,000 of the original principal amount of $34,000.

Four of the loans reported involve Conseco Finance, which was the nation's largest manufactured housing lender. It is now in bankruptcy proceedings, awaiting reorganization.

One 2002 Conseco loan in South Dakota carried a rate of 17 percent, the groups reported. Another 2000 loan was at 12 percent, despite a 50 percent down payment. A third, 2001 loan, at 9.75 percent, also included 10 percent of the loan amount in fees.

According to the groups, the survey results "paint a troubling picture concerning the magnitude of abusive and high-cost lending targeted particularly to first-time homebuyers."

The groups recommended to tribes, as they did last year after a similar analysis, to take legal steps to protect themselves against abusive lenders.

About 70 percent of the 37 respondents indicated that predatory lending was either a big problem or somewhat of a problem on Indian reservations. More than 35 percent of them said they knew someone who had had their house foreclosed on.

A majority of the respondents said they believed racial discrimination played a part in mortgage lending on reservations.

They also thought price discrimination was present, meaning that Native borrowers could have qualified for loans at lower interest rates than they actually received.

The groups said the respondents thought first-time homebuyers, young borrowers, and manufactured housing customers were most at risk for abusive lending.

The study noted this as a difference from urban areas, where elderly are often targeted, and home improvement lending scams are common.

Last year, NAIHC released a model ordinance it advised tribes to use as a basis for their own anti-predatory lending legislation. The Navajo Nation has passed consumer protection provisions that limit general lending rates to 18 percent for its tribal members.