Hurricane Katrina has brought into focus the financial plight of many blacks along the Gulf Coast as well as illustrating the differences in how minorities and whites use and are treated by banks.
Many poor people lost their savings, in cash, which was stashed under mattresses and in teapots. Around the country, many low-income minorities shun banks, have never used an ATM machine or applied for a home mortgage. Often, they turn to storefront payday lenders, which charge high interest.
At all income levels, blacks are far more likely to be given high-cost, “subprime” mortgages than whites, according to a Federal Reserve analysis of home lending data.
An NAACP official on Wednesday urged lenders to freeze mortgage foreclosures and suspend late fees on loans for people affected by the hurricane.
“There are a few steps that can and should be taken by all financial institutions to ensure that the people of Louisiana, Mississippi, Alabama and the other areas affected by Katrina are not further victimized and do not suffer further losses,” the NAACP’s Hilary Shelton told members of a House Financial Services subcommittee.
Most banks and mortgage lenders in the affected areas are letting customers postpone payments on consumer, commercial and mortgage loans. Rep. Spencer Bachus, R-Ala., the panel’s chairman, said federal banking regulators need to help banks in the disaster zones by relaxing some rules.
In a related development, two key Republican lawmakers announced they had drafted a legislative change that would require some of the profits of mortgage giants Fannie Mae and Freddie Mac to go to financing housing for low-income people in areas hit by Katrina as well as in those where survivors now live. The proposal by Reps. Michael Oxley, R-Ohio, and Richard Baker, R-La., was being included in legislation before the House to tighten government oversight of the two companies, which together finance more than three-quarters of the home mortgages in the country.
Shelton, director of the Washington bureau for the National Association for the Advancement of Colored People, said the civil rights group also is concerned about predatory lenders who “must be circling some of the worst-hit areas, salivating at the potential for abuse” of Katrina’s victims.
Predatory lending occurs, for example, when lenders pressure homeowners into high-interest loans to refinance mortgages, home equity loans or home repair loans that the borrowers may not be able to repay. The loans, while legal, have drawn widespread criticism.
Like the Federal Reserve report, studies in recent years have shown that a much larger share of black and Hispanic homeowners pays higher interest on their mortgages than do whites in similar circumstances.
The studies have found that disproportionate numbers of blacks and Hispanics have subprime mortgages, which are high-interest loans to homeowners deemed riskier because of tarnished credit histories or other factors. Such home loans are said to be concentrated in minority communities at far higher levels than in white neighborhoods.
The Fed report released Tuesday reviewed home lending data for 2004. It found that about 32 percent of blacks and 20 percent of Hispanics got high-interest loans, compared with 9 percent of non-Hispanic whites.
The data did not necessarily indicate widespread discrimination against minorities, the Fed analysts said. The study did not take into account borrowers’ credit ratings. Still, even after adjusting for differences in income and location of homes, it found that blacks are nearly twice as likely as whites to get more expensive mortgages.
Bankers from Louisiana and Mississippi who testified at Wednesday’s House hearing laid out a list of requests for action by Congress. It included a fund that would allow the government to buy loans of borrowers affected by Katrina who are unable to make payments on them.
A few banks may need direct government aid in addition to remain in business, C.R. “Rusty” Cloutier, president and chief executive officer of MidSouth Bank of Lafayette, La., told the subcommittee.
“Community banks will be essential to the survival of communities in the affected areas,” Cloutier said. “Small businesses will only be able to rebuild if community banks are healthy and able to respond to their needs.”
Officials of the Federal Deposit Insurance Corp. have said there could be problems for banks in the region whose customers are unable to repay loans, but the effect would be mitigated when disaster relief kicks in. The banks in the area generally were in a strong financial condition before Katrina hit, regulators and bankers say.