WASHINGTON (AFP) — US mortgage lenders targeted minorities and people with low incomes in recent years as the "best candidates" for subprime home loans, with devastating economic consequences, a report claimed Tuesday.
The report by the United for a Fair Economy (UFE) advocacy group said subprime mortgages, home loans issued to Americans with scant finances, were "ruthlessly hawked" and that a "solid majority of subprime loan recipients were people of color."
Hundreds of thousands of families lost their homes to foreclosure last year after failing to keep up with mortgage payments, a hefty chunk of which were subprime loans, amid a national housing downturn that shows no sign of easing.
Some economists believe the almost two-year-long housing slump could pitch the world's largest economy into a recession.
"The crisis has ruined many economic lives and many communities," the UFE report said, adding that "even a surface check of the demographics shows that, in city after city, a solid majority of subprime loan recipients were people of color."
UFE researchers said Detroit, Michigan has been hit by more foreclosure filings than any other city in the one hundred largest US metropolitan areas, and that it ranks third among cities with the largest black populations.
The report's authors said many blacks and poor Americans were deliberately targeted by lenders marketing a range of money-making home loans that were sometimes confusing for borrowers to understand.
"Hungry for new and different products, the financial services industry added features to these loans -- exploding adjustable rates, balloon payments, penalties for early re-payment -- that hobbled their recipients financially and made it unlikely that they would be able, after a brief honeymoon period, to repay the loans at all," the report said.
The Boston-based UFE, which released its findings to coincide with the January 15 birthday of Martin Luther King Jr, the US civil rights icon who was assassinated in 1968, said pre-payment penalties benefit lenders, but penalize borrowers from paying off a loan early.
The group said that although subprime loans were once a niche product, they had swelled during a years-long housing-boom to account for around 20 percent of all US mortgages.
Some lenders made it difficult for borrowers to understand their loan's full terms and steered customers into taking out subprime loans when they could have qualified for better terms, the UFE said.
The report estimated the total loss of wealth "for people of color" including Latinos to be between 163 and 278 billion dollars for subprime loans taken out during the past eight years.
"We believe this represents the greatest loss of wealth for people of color in recent US history," the UFE said, saying America was entering an economic downturn that could match the Great Depression.
The administration of US President George W. Bush is mulling remedies to bolster the economy after brokering a vast mortgage relief plan last month aimed at helping up to 1.2 million distressed homeowners at risk of foreclosure.
"Communities across the nation are being torn apart. As mortgages go into foreclosure, people move out, houses are boarded up, crime and fires increase, neighboring properties are devalued, and the tax base erodes," Brenda Cotto-Escalera, one of the report's co-authors, said.
The UFE also criticized the trading of mortgages between banks, compared to times when loans were overseen by a local bank manager familiar with a borrower's income and outgoings.
The Boston-based group seeks to address what it says is a widening income gap in the United States, and advocates for a "powerful fair economy."
Copyright © 2013 AFP. All rights reserved. More »