The Color Of Credit

Just a few years ago, there were only two ways to get a home loan: a fixed rate or a basic adjustable rate mortgage. Now consumer groups estimate there are more than 200 different types of loans out there and ABC2 News Investigator Tisha Thompson discovered too many people in Maryland may end up with high-risk loans not because of how much money they make, but because of what they look like.

For Chenea Carter, foreclosure was something she never thought would happen to her. “Utter panic,” she says went through her when she received her foreclosure notice. “Utter, utter panic.”

It started when Carter refinanced the mortgage on the home her family had owned for 50 years. “The furnace went up,” she says. “The heater went up, things that just required attention and money.”

But, a few years into her new loan, the interest rate on her mortgage exploded. “I didn’t know that after the first three years it would happen like that,” Carter says. She didn’t know it when she signed her paperwork, but Carter’s broker signed her up for what’s called a “subprime loan.” It’s a loan that’s more than 3% higher than the typical loan. It’s supposed to help people with a low credit score to buy a house. The problem is we’ve found that too many people in Maryland got a subprime loan not because of how much money they make, but because of what they look like.

Our ABC2 News investigation found that one out of six Maryland homes used a subprime loan in the last few years. "A lot of them qualify for conventional loans,” Congressman Elijah Cummings (D-MD) says. “That's the part that eats away at my heart."

Phillip Robinson of Civil Justice Network says brokers push people into these loans because that’s how they make their money.

“Subprime loans are not necessarily predatory loans,” he says. “What makes it predatory are the extra fees that are charged.” He explains that the bigger the loan, the bigger the commission. So, to get people qualified, Robinson says some brokers combine subprime loans with high-risk options like 100% financing, an adjustable rate, paying only the interest or paying just a minimum payment similar to a credit card, and all of the debt that comes with it.

"Few of these borrowers can afford to make monthly payments that in year three skyrocket 30 to 50 percent higher than the first two years," says Allen Fishbein, Director of Housing and Credit Policy at the Consumer Federation of America.

Some consumer groups say some brokers decide if they’re going to push you into a subprime loan based on what you look like.

When we went through the more than 1.7 million loans made in Maryland in 2004 and 2005, the ABC2 News Investigators found minorities ended up with a subprime loan two to three times more often than their white non-Hispanic neighbors, even if they made the same amount of money. The hardest hit? The elderly, Latinos and African-Americans, including those who had a family income of more than $100,000.

"I find it offensive that 'oh, upper income African-Americans must have credit problems,’” says Secretary Thomas Perez, the head of the Maryland Department of Labor, Licensing and Regulation. “That's an offensive notion to me."

Perez is in charge of regulating Maryland’s mortgage industry. “One of the things we can't currently do that I would like to see changed,” he says, “is to be able to develop the capacity to identify mortgage brokers who have a disproportionate number of loans that go into foreclosure.”

"I said you couldn't have bought my home!"

Carter says she barely managed to pay off her ballooning mortgage, but her mortgage company still sold her house at a foreclosure auction anyway. She sued the company in court.

"The judge said, I rule in your favor, the foreclosure is cancelled, the selling of the home is canceled,” Carter says. “I won."
(abc2 news.com)