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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 HSBC’s higher cost subprime units. While HSBC’s subprime units, the former Household International, make 4.3 loans to whites for each loan to an African American, HSBC’s prime units make over 23 loans to whites to each loan to an African American.

            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 HSBC’s prime and subprime units, over 32 percent of HSBC’s mortgage are higher cost, subject to a rate spread. This compares to 9.13 percent at Wells Fargo, and is also inconsistent with HSBC’s 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 Citigroup’s 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 Fargo’s mortgage servicing, FFW has received more and more complaints, including about Wells’ stealth America’s 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 bank’s 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 Chase’s 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 Corporation’s 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 ICP’s 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 Block’s 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 Supervision’s 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 Fargo’s 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 HSBC’s 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 HSBC’s mortgage capacity in the United States was acquired along with Household International. Within this part of HSBC’s business, over 47% of originated loans were at high costs, with rate spreads. This contradicts HSBC’s chairman John Bond’s claim that well over half of Household’s business is “prime.” Bond used the figure 63% at HSBC’s 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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