Question:

What is the impact of predatory lending on minorities?

Answer:

While states in general are trying to curb predatory lending, it may be too late for certain minority groups who suffer the greatest impact of predatory lending. The most targeted group is the African Americans. For some reason, subprime loan refinances account for more than 50% of the refinances in a black neighborhood. While not all subprime loans are predatory, the rule is that almost all predatory loans are subprime.

In theory, what happens is that a borrower who is not educated about home loans is very easily to be charged straight 10% over the prime rate, 10% of the loan amount in closing costs, and a 5-year prepayment penalty. How long, you think, does it take to get to foreclosure?

What is the impact of predatory lending among Afro-Americans?

Statistics shows that subprime purchase loans extended to borrowers of Afro-American origin have increased 10 times since 1996. Some argue that there are much more whites who obtain subprime loans compared to black people and that the rates Afro-American often get are simply what their credit qualifies them for.

Statistics also shows other proof for the increased predatory lending practices targeting Afro-Americans:

  • Blacks are 3 times as likely to get a subprime loan as white consumers.
  • Low income whites are less likely to get a subprime loan than an Afro-American household with upper-class income.

According to the Association of Community Organizers for Reform Now (ACORN), the racial discrepancy exists mainly because of the lack of prime lenders in black communities.

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