African American and Latino home buyers are still the victims of predatory lending, the practice of imposing unfair and abusive loan terms on borrowers. According to the ACORN study Separate and Unequal 2004: Predatory Lending in America, minority and low-income borrowers are more likely to be the target of subprime loans. Such loans are typically made to borrowers with credit problems or limited credit histories who do not qualify for cheaper prime loans. Subprime loans carry higher rates, fees, and other costs than prime loans.
Subprime loans become predatory when borrowers end up paying higher interest rates than they actually qualify for or when borrowers are pushed to get loans through fraudulent and deceptive means.
Subprime lending has grown faster than prime lending in the past year. In conventional home purchase lending, subprime lenders originated 427,878 loans in 2002, a 44% increase from 2001. Prime lenders originated 3,736,044 conventional home purchase loans in 2002, a smaller increase of 23.6% from 2001.
In 2002, subprime lenders originated 933,025 refinance loans, an increase of 33.2% from 2001. Prime lenders originated 8,062,713 refinance loans in 2002, an increase of 24.7% from 2001.
Nationally in 2002, African Americans who refinanced were 4.1 times more likely to receive a subprime loan than whites. Latinos were 2.5 times as likely as whites to receive those loans. Subprime lenders originated 27.6% of the refinance loans to black homeowners, 17.1% of the refinance loans to Latino homeowners and 6.7% of those to whites, according to the ACORN study, which compared lending data for 117 metropolitan areas nationwide.
The ACORN study also calls for more stringent legislation to protect borrowers from abusive practices, additional funding for the Department of Housing and Urban Development, and greater regulatory scrutiny of deceptive lending practices.