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Predatory Profiling: The Role of Race and Ethnicity in the Location of Payday Lenders in California

March 26, 2009

In California and elsewhere, African Americans and Latinos make up a disproportionate share of payday loan borrowers. CRL's analysis reveals that the racial and ethnic composition of a neighborhood is the primary predictor of payday lending locations, while playing a very minimal role in explaining the variation in the location of bank branches. As a result, payday lending storefronts are most heavily concentrated in African American and Latino communities. By contrast, the location of mainstream financial service providers such as banks can be largely explained by supply and demand factors such as the presenceof retail space.

Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners

December 1, 2006

The "Losing Ground" study is the first comprehensive, nationwide review of millions of subprime mortgages originated from 1998 through the third quarter of 2006. CRL finds that despite low interest rates and a favorable economic environment during the past several years, the subprime market has experienced high foreclosure rates, and we project that one out of five (19.4%) subprime loans issued during 2005-2006 will fail.The report discusses a number of factors that drive subprime foreclosures-these include adjustable rate mortgages with steep built-in rate and payment increases, prepayment penalties, limited income documentation, and no escrow for taxes and insurance. We also determine that these features cause a higher risk of default regardless of the borrower's credit score.Our study also finds that recent high appreciation in many areas has masked problems in the subprime market, and that the cooling housing market will cause failure rates to rise sharply in many major markets. California, Arizona, Nevada, and greater Washington DC will be especially hard hit. Also in this report, we project lifetime foreclosure rates for 2006-originated subprime loans in each MSA in the United States.

Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages

May 1, 2006

African-Americans and Latinos get high-priced subprime mortgages far more frequently than whites -- even when they are equally qualified, according to a groundbreaking new study from CRL. Lenders say they charge more because African-Americans and Latinos on average have shakier credit histories, which makes lending to them riskier. But that explanation is simply wrong. In the most extensive study of its kind, CRL found that African-Americans and Latinos are commonly almost a third more likely to get a high-priced loan than white borrowers with the same credit scores. The study examined 50,000 subprime loans. A House subcommittee is now discussing whether to pass a weak bill favored by industry or strong protections that would stop predatory lending practices like this in the vast sub-prime mortgage market, where people with blemished credit borrow and most mortgage abuses occur.

The Best Value in the Subprime Market: State Predatory Lending Reforms

February 1, 2006

To find a model for national legislation, many lawmakers need look no further than their own backyards. People who live in states with strong laws against predatory lending are more likely to get responsible mortgages at a lower cost. Our findings show that state laws enacted to prevent predatory mortgage lending work as intended to reduce abusive loan terms without impeding credit. Strong state laws have been good for consumers while supporting a thriving subprime lending market. They provide credit-strapped families with plenty of access to responsible home loans at typical -- or even lower -- costs. At least 24 states have passed specific anti-predatory lending laws to supplement federal protections aimed at ending abusive mortgage lending practices.

The Plastic Safety Net: The Reality Behind Debt in America

October 12, 2005

The tempestuous household economy and the rapid rise in debt over the last decade have been well-documented but not thoroughly understood. Existing data sources tracking debt, such as the Federal Reserve Board's triennial Survey of Consumer Finances, provide a limited picture of household indebtedness. Existing sources couldn't answer the simplest of questions, including how long the average household has been in debt and what types of purchases led to outstanding balances. Prior to the survey findings presented in The Plastic Safety Net, there has been no data available to study how households are using credit cards and how they are managing their debt. The Plastic Safety Net presents findings from a national survey of households with credit card debt commissioned by Demos and the Center for Responsible Lending. The survey consisted of 1,150 phone interviews with low- and middle-income households whose incomes fell between 50 percent and 120 percent of local median income. In order to participate in the survey, a household had to have credit card debt for three months or longer at the time of the survey.

Borrowers in Higher Minority Areas More Likely to Receive Prepayment Penalties on Subprime Loans

January 1, 2005

For years, subprime lenders have defended prepayment penalties by claiming that borrowers with penalties get a lower interest rate. Now, groundbreaking research by CRL shows that borrowers get no rate benefits with subprime prepayment penalties -- and that residents in minority neighborhoods have much greater odds of receiving such penalties. Prepayment penalties (fees for paying off mortgage loans early) are almost nonexistent in the prime mortgage market, but occur in up to 80% of subprime mortgages. The costs of these fees can prevent refinancing or strip equity, widening an already vast wealth and homeownership gap between white families and African-American and Latino families.