April 11, 2005 - and see "Minority
customers get higher loan rates, study says," by David Weidner, CBS MarketWatch and
Investor's Business Daily, April 11, 2005
Inner City Press / Fair Finance Watch has now reviewed the 2004 Home Mortgage
Disclosure Act data of HSBC, Wells Fargo, J.P. Morgan Chase and certain other lenders,
including the new information concerning which loans are subject to a rate spread (3%
higher than comparable Treasuries on a first lien, and 5% on a subordinated lien), and has
found the following:
Within HSBC, African Americans are 5.42 times more likely than whites to be
processed through HSBCs higher cost subprime units. While HSBCs subprime
units, the former Household International, make 4.3 loans to whites for each loan to an
African American, HSBCs prime units make over 23 loans to whites to each loan to an
Of the higher cost rate spread loans made by HSBC Bank, African Americans are 6.46
times more likely to get such loans than whites; Hispanics are 6.5 times more likely to
get rate spread loans from HSBC Bank than are whites.
Meanwhile, HSBC Mortgage denies the applications of African Americans 2.53 times
more frequently than whites.
Combining HSBCs prime and subprime units, over 32 percent of HSBCs
mortgage are higher cost, subject to a rate spread. This compares to 9.13 percent at Wells
Fargo, and is also inconsistent with HSBCs claims, at the time it acquired Household
International and since, that only a small part of its mortgage loans are subprime.
At Wells Fargo for home purchase loans, African Americans borrowers are 3.9 times
more like to receive a rate spread loan that white borrowers. This is only slightly less
disparate than Citigroup, at which African Americans borrowers are 4.34 times more like to
receive a higher-cost rate spread home purchase loan that white borrowers. Meanwhile,
Wells Fargo denies the applications of African Americans for home purchase loans 2.3 times
more frequently than those of whites, nearly as disparate as Citigroups 2.6 to one
denial rate ratio between African Americans and whites.
At Wells Fargo for all types of mortgage loans, African Americans are 3.19 times
more like to receive a rate spread loan than white borrowers. In terms of Wells
Fargos mortgage servicing, FFW has received more and more complaints, including
about Wells stealth Americas Servicing Company unit. Wells Fargo is also a
major funder of payday lenders, including targeters of military personnel such as Armed
Forces Loans, Inc.. ICP has raised this directly to Wells Fargo, and to the Federal
Reserve on Wells proposal to acquire First Community Capital Corp., which was
announced back on September 2, was challenged by ICP on November 1, and which still
remains pending, more than five months later.
J.P. Morgan Chase is also a major funder of payday and car title lenders, as ICP
has previously documented. See, e.g., the
Columbus Dispatch of April 15, 2004, Group Opposes Bank One Sale: Business with
Predatory Lenders a Concern, in which the banks spokesman confirmed his
aware[ness] of concerns about the type of businesses that Inner
City Press cited. No changes, however, have been announced by the bank from
last April to this. J.P. Morgan Chase is, like HSBC, a major purveyor of tax Refund
Anticipation Loans and other high-cost fringe financial services products.
Inner City Press analysis of J.P.
Morgan Chases 2004 lending record (based on the 1,083,774 applications reported)
finds similar rate spread disparities at Morgan Chase. For loans secured by a first lien,
African Americans are 2.68 times more likely
to receive rate spread loans than whites at J.P. Morgan Chase. This is more disparate than
for example National City Corporations 2.21 disparity reported in the Wall Street
Journal of March 30, 2005. See, Blacks Are Found to Pay High Rates for Home
Loans, WSJ of 3/30/05, D2; compare to the 4/4/05 Associated Press report on
ICPs first study, U.S. Community Group Alleges Citigroup, Bank of America
Discriminate in Mortgage Lending.
These stark disparities at the largest banks require action in Congress and the
courts, and at the Federal Reserve. Self-regulation and so-called best practices have
simply not worked. The new data would be even more telling if credit scores and
underwriting information were included. But it
was after industry lobbying that this type of information was left out. The disparities speak for themselves. They militate
for solutions both legislative and regulatory. Even before conducting the investigations
that ICP (and the data) call for, the federal regulators should demand compliance with the
Home Mortgage Disclosure Act.
ICP Fair Finance Watch timely requested data from over one hundred lenders.
Numerous large lenders continue flouting the March 31 deadline, including U.S. Bancorp,
H&R Blocks Option One, and Toronto Dominion / Banknorth. HMDA-reporter Merrill Lynch Credit Corporation has
provided its data only in PDF format, in which it can be seen but not cumulated and
analyzed. The same remains true of AIG and its federal savings bank and American General
Finance units. Lehman Brothers, which owns two major subprime lenders, has yet to respond.
So which agencies will ensure compliance by other conglomerates like AIG, Merrill Lynch
and Lehman Brothers? On paper, this is the Office of Thrift Supervisions job, since
each of them owns thrifts. But the OTS and its
director James Gilleran have been weakening and attacking the Community Reinvestment Act. The above-named thrift holding companies appear to
be emboldened. ICP has raised these matters to the other regulatory agencies, calling for
action from each of them. The results will be reported on this site.
Method and Scope of Review
Inner City Press / FFW reviewed Wells Fargos combined 2,048,349 loan mortgage
loan applications records for 2004, and the 1,083,774 records in the Super-LAR
provided by J.P. Morgan Chase. ICP Fair
Finance Watch reviewed HSBCs combined 1,614,678 loan mortgage loan applications
records for 2004. Fully 1,378,448 of these are from the three ex-Household International
units, HFC, Beneficial and Decision One (the last of these was not covered or reformed by
the $486 million predatory lending settlement with attorneys general in late 2002). Thus,
over 85% of HSBCs mortgage capacity in the United States was acquired along with
Household International. Within this part of HSBCs business, over 47% of originated
loans were at high costs, with rate spreads. This contradicts HSBCs chairman John
Bonds claim that well over half of Households business is prime.
Bond used the figure 63% at HSBCs shareholders meeting on March 28, 2003, at
which the Household acquisition was voted on. Of the problems at HSBC, ICP has written and
received confirmation from the United Nations, to which HSBC has said it will respond.
[Update of April 11, 2005 - the Wall Street Journal's April 11, A2
presentation of lending data for some reason does not include HSBC / Household, clearly
one of the largest subprime / rate spread lenders in the country. Developing...]
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