Mortgage lending to African Americans is on the rise, up 15% in 2003 from 2002, according to July data from the Consumer Bankers Association. CBA President Joe Belew says for new homes, “lending to blacks surpassed lending to whites by 36%.”
Two-thirds of all potential home buyers prefer fixed-rate mortgages (FRMs) to adjustable-rate mortgages (ARMs), according to a July survey of 1,015 Americans released by the Consumer Federation of America. However, the CFA study also finds that African American buyers tend to show a poor understanding of mortgage loan risks — and at a time of rising interest rates, 31% are purchasing ARMs. CFA Executive Director Stephen Brobeck says, “Given the high probability of interest rate increases, an adjustable- rate loan made to a family that can barely afford the initial monthly payments represents a ticking time bomb.”
Traditionally, ARMs have worked for buyers intending to own a property for a limited time (up to seven years). They’ve also been popular among high-income and high-credit-rated consumers. But the CFA finds that lenders have begun marketing ARMs to unsuspecting lower-income clients who expect to own property for longer periods (15 or 30 years), and it is urging lenders to fully disclose potential costs of adjustable-rate mortgages to uninformed buyers.
In investigating which groups tend to choose ARMs as opposed to FRMs, the CFA did not distinguish among African Americans on the basis of income, age, or education, but it found that 33% of all Americans who earn less than $25,000 annually and 26% of those who possess only a high school degree prefer ARMs.
More data concerning home buying can be found in a July Gallup report, Blacks More Pessimistic Than Whites About Economic Opportunities. Results show that 86% of whites and 74% of Hispanics think that blacks have home buying opportunities equal to those of the rest of the population. But just 55% of blacks agree, up from the 48% who agreed during the recession in 2002.
