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NCRC releases Best and Worst Lenders: A Consumers' Guide

March 13, 2003

Washington, DC -- The National Community Reinvestment Coalition (NCRC) released today America's Best and Worst Lenders: A Consumers' Guide to Lending in 25 Metropolitan Areas, a comprehensive ranking of lending institutions in 25 metropolitan areas during 2000 and 2001. Best and Worst Lenders ranks banks, thrifts, mortgage companies and credit unions based on the percentage of home purchase and refinance loans they made to minorities, women, and low- and moderate-income borrowers and neighborhoods. Consumers will find Best and Worst Lenders to be invaluable in determining which lenders are most likely to approve them for home purchase and refinance loans.

The twenty-five metropolitan areas in Best and Worst Lenders are Washington DC, New York, Chicago, San Francisco, Boston, Los Angeles, Baltimore, Miami, Oakland, Philadelphia, Atlanta, Detroit, Cleveland, Dallas, Houston, Denver, Portland, Phoenix, Riverside/San Bernadino, San Diego, St. Louis, Minneapolis-St Paul, Albuquerque, Cincinnati, and Milwaukee.

In addition to ranking lending institutions, Best and Worst Lenders provides detail on prime, subprime, and manufactured home lending trends across the 25 metropolitan areas examined in the study. Prime lenders make loans at widely advertised and competitive interest rates. Non-prime lenders (subprime and manufactured home lenders) make loans at above prevailing rates in order to compensate for the risk of lending to borrowers with credit imperfections. NCRC's study finds that non-prime lending increases faster than prime lending in minority and low- and moderate-income neighborhoods as the level of segregation increases and as housing becomes more affordable on a metropolitan level.

John Taylor, President and CEO of NCRC, exclaims, "It is profoundly troubling that non-prime lending surges as communities become more segregated by race. This is one more piece of evidence that a segment of non-prime institutions is predatory and takes advantage of vulnerable communities confronted with fewer product choices. It also does not follow that non-prime lending should be more prevalent in relatively affordable areas since more low- and moderate-income borrowers should be able to qualify for prime mortgages in these areas. Market failure and disparities in lending continue to deprive communities of healthy product choice."

NCRC encourages consumers, community groups, regulatory agencies, and city and state governments to use Best and Worst Lenders to goad prime lenders ranked as making the least amount of loans to underserved communities to improve their performance and emulate the practices and products of the best prime lenders. Best and Worst Lenders also reveals the non-prime lenders making the highest and lowest percentage of loans to minorities, women, and low- and moderate-income borrowers. Regulatory enforcement must be focussed on non-prime lenders making high portions of loans to underserved communities in order to ensure that their lending is not abusive and not discriminatory. If applied to prime and non-prime lenders in this manner, NCRC believes that Best and Worst Lenders will increase affordable lending and product choice in America.

NCRC found that the best prime institutions in home mortgage lending included Bank of America, Fleet National Bank, and Irwin Mortgage in 2000 and 2001. The best prime institutions in refinance lending included Bank One and First Union. The worst prime lenders included ABN AMRO, Cendant Mortgage, and Ohio Savings Bank during the two years.

The metropolitan areas with the greatest disparities in prime and non-prime home purchase lending included Milwaukee, Chicago, Cleveland, St. Louis, Houston, and Philadelphia. The metropolitan areas with the least disparities in home purchase lending were Riverside/San Bernadino, Los Angeles, Portland, San Diego, and Miami. Most of these metropolitan areas also had the greatest or least disparities in refinance lending.

An example of disparities in refinance lending involves Milwaukee and Los Angeles. In Milwaukee, non-prime lenders made 28.4 percent of their refinance loans to African-Americans but prime lenders issued only 3.2 percent of their loans to African-Americans during 2001. In Los Angeles, on the other hand, non-prime and prime lenders issued 13.8 percent and 5.1 percent of their refinance loans to African-Americans, respectively. Even in the "better" metropolitan areas, significant disparities remained for African-Americans.

In home purchase lending, prime lenders in Washington, DC made 40.0 percent of their mortgage loans to low- and moderate-income (LMI) borrowers while non-prime lenders issued a smaller portion (34.6 percent) of their mortgage loans to LMI borrowers during 2001. In sharp contrast, non-prime and prime lenders made 51.9 percent and 34.3 percent of their mortgage loans to LMI borrowers, respectively, in Cleveland during 2001.

John Taylor continues, "It is no coincidence that LMI borrowers enjoy the least disparities in mortgage lending and LMI borrowers are the only demographic group included in Community Reinvestment Act (CRA) exams."

Passed in 1977, CRA obligates banks and thrifts to meet the credit needs of LMI communities in their service areas. Regulatory agencies issue CRA grades or ratings to lenders based on the number and percentages of loans to LMI borrowers and communities. In order to expand product choice and increase lending to underserved communities, Best and Worst Lenders recommends that CRA explicitly evaluate lending to minorities as well and that CRA be applied to independent mortgage companies. NCRC found that the non-CRA covered prime lenders were much more likely to be worst, not best lenders. Another key recommendation is the enactment of a comprehensive anti-predatory lending bill on a federal level to combat market failure and disparities in lending documented by Best and Worst Lenders.

John Taylor concludes, "A veil of secrecy shrouds the practices of too many lending institutions in America. We call on Congress to include loan terms and conditions in the publicly available home loan data so we can really see what types of loans are available to underserved communities. In the meantime, NCRC hopes that Best and Worst Lenders: A Consumer's Guide will promote true product choice in all communities across America for home purchase and refinance lending."

Best and Worst Lenders: A Consumers' Guide to Lending

Source: National Community Reinvestment Coalition