Docstoc

who gets higher cost_ year 10

Document Sample
who gets higher cost_ year 10 Powered By Docstoc
					    Who Really Gets Home Loans? Year Ten
Mortgage Lending to African-American and Latino Borrowers in
             5 California Communities in 2002




                                     November 2003


                           California Reinvestment Committee
                             474 Valencia Street, Suite 110
                            San Francisco, California 94103
                                     (415) 864-3980
                                   www.calreinvest.org



              Kevin Stein conducted the analysis and drafting of this report
                       Rita Laila Johal assisted with the research

CRC is a nonprofit membership organization of more than two hundred (200) nonprofit
organizations and public agencies across the state of California. We work with
community-based organizations to promote the economic revitalization of California’s
low-income communities and communities of color. CRC promotes increased access to
credit for affordable housing and community economic development, and to financial
services for these communities. CRC promotes community reinvestment through
negotiation with and regular monitoring of major California financial institutions, as well
as through the provision of technical assistance to local communities in California.
EXECUTIVE SUMMARY

Who Really Gets Home Loans? Year Ten investigates whether California’s largest banks
and mortgage companies are fairly meeting the credit needs of traditionally underserved
homebuyers and homeowners in the state. This report looks at home purchase lending by
banks in California, and explores the relationship between race and the cost of credit. In
analyzing home lending patterns for the state’s top lenders, the California Reinvestment
Committee (“CRC”) finds that four key trends emerge:

   1. There is Unequal Access to Home Purchase Loans. African American and
      Latino households are not receiving their fair share of home purchase loans;

   2. People of Color Pay More for Home Loans. African American and Latino
      borrowers are more likely than white borrowers to have an expensive home loan.

   3. A Two-Tier System of Credit Exists Within Large Financial Corporations.
      Companies that own both a bank and a higher cost subprime lender are not
      lending equally to borrowers of color.

   4. The Cost to Borrowers of Subprime Lending is High. Subprime borrowers
      may have loans with extremely high interest rates and excessive fees. In 2002,
      some subprime home loans carried Annual Percentage Rates (APR) over 20%,
      while most bank customers received loans with APRs at 7% or lower.

Key Findings

CRC analyzed 2002 Home Mortgage Disclosure Act (HMDA) data for thirteen of the
largest California banks and bank-affiliated mortgage lenders, looking at lending patterns
in Fresno, Los Angeles, Oakland, Sacramento, and San Diego.

1. Unequal Access to Home Purchase Loans

Lender performance was reviewed based on CRC’s Equality Benchmark, which
compares home loan activity to the proportion of African American and Latino
households in each of the five cities analyzed. Lenders earned Equality Benchmark points
for taking applications from, or originating home purchase loans to, African American
and Latino households in proportion to the representation of these groups in each city.

Analysis of home lending patterns in the year 2002 shows that major bank lenders are
failing to serve African American and Latino households in California:

  •   No Bank Met the Needs of African American and Latino Home Loan
      Applicants. The “best” lender, National City, had only six Equality Benchmark
      points out of a possible twenty points for a 30% success rate.




                                                                                         2
  •    Two Banks Were Especially Noteworthy for Their Poor Performance.
       Washington Mutual and Countrywide, two of the largest lenders in the state,
       received no Equality Benchmark points, meaning they failed to take in applications
       and lend proportionally to African Americans and Latinos in every instance.

  •    Five Banks Did Worse Than Last Year. Bank of America, Chase Manhattan,
       U.S. Bank, Washington Mutual and World Savings each scored fewer Equality
       Benchmark points than last year.

  •    Los Angeles Saw the Greatest Inequities. Banks in Los Angeles met the Equality
       Benchmark less than 6% of the time. San Diego fared only slightly better, with
       lenders achieving the Equality Benchmark under 8% of the time.

  •    Banks Ignore African Americans. Lenders consistently failed to serve African
       Americans. In all five cities combined, the thirteen banks met the Equality
       Benchmark a mere 2.3% of the time. No lender met the Equality Benchmark for
       outreach or lending to African Americans in Oakland or San Diego.

2. African American and Latino Borrowers Pay More for Home Loans

A new dimension has been added to the battle for equal access to credit in California.
For years, communities of color struggled to access loans to buy homes. Now,
traditionally underserved communities are being flooded with loan opportunities, but it is
for high cost, subprime credit that they can ill afford and often do not deserve. Subprime
loans can come with Annual Percentage Rates (APR) of 20%, or higher.

Prime lending refers to lending for borrowers with good credit profiles. Subprime lending
refers to lending that is targeted to credit-impaired borrowers and which often includes
higher interest rates, up front loan costs, and fees. California has witnessed an explosion
in subprime lending, from an estimated $18 billion in 1998, to over $62 billion in 2002.

As subprime lending disproportionately impacts borrowers and communities of color,
CRC views this as a civil rights, fair lending, and economic justice issue. The amount you
pay for a loan should not vary depending on where you live or what you look like.

CRC compared the home lending patterns of thirteen bank lenders to that of the largest
thirteen subprime lenders in the state. Subprime lenders were much more likely than bank
lenders to accept home loan applications from, and make home loans to, African
Americans and Latinos. These large disparities suggest that banks are far less successful
in reaching out and lending to underserved households.

   •   African Americans Not Served. Higher cost subprime lenders did more of their
       business with African American households than did conventional bank lenders in
       all 5 survey cities. In Oakland, the thirteen subprime lenders took in 44% of their
       home loan applications from African Americans, compared to 23.2% of home
       loan applications of the thirteen bank lenders coming from African Americans.


                                                                                         3
   •   Latinos Not Served. Subprime lenders took a greater percentage of applications
       from, and made a greater percentage of loans to, Latino borrowers than did their
       prime counterparts in each of the five survey cities. In San Diego, 22.1% of
       subprime loan applications came from Latino households, compared to 11.9% for
       bank and bank-affiliated prime lenders.

3. A Two-Tier System of Credit Exists Within Financial Corporations

CRC examined the lending records of 6 large financial corporations that own BOTH a
low cost prime lender AND a high cost subprime lender: Citibank, Countrywide, H&R
Block, HSBC, National City, and Washington Mutual.

In analyzing the lending patterns of these companies, CRC found a two-tier system of
credit exists within large financial services corporations, with subprime mortgage
companies focusing more on African Americans and Latinos than their bank affiliates.

   •   Subprime For African Americans. In each city, subprime applications were
       twice as likely to come from African American loan seekers as prime applications
       were. In Los Angeles, 14% of all subprime applications came from African
       American loan seekers, compared to 5.2% for their bank affiliates.

   •   Subprime For Latinos. Subprime lenders also received a greater percentage of
       applications from Latino borrowers than did their prime affiliates in all five cities.
       In San Diego, 24.9% of subprime applications were from Latinos, compared to
       12% for prime affiliates.

   •   At Countrywide and Washington Mutual, Race Disparities. Countrywide and
       Washington Mutual both did less outreach and lending to African Americans and
       Latinos, as a percentage of their business, than their subprime lenders did, in each
       of the 5 survey cities.

4. The Cost of Subprime Lending is High

The cost difference between a prime and subprime loan can be substantial. In 2002, the
average interest rate on a 30-year fixed mortgage was 6.54% and average points paid by
the consumer were .6%, according to Freddie Mac, one of the Government Sponsored
Enterprises (GSEs).

   •   In contrast, in 2002, several subprime lenders originated loans in California with
       Annual Percentage Rates (APRs) that exceeded 15%, including: Citifinancial
       Services, Option One Mortgage, Household Finance, Beneficial, Washington
       Mutual Finance, and Wells Fargo Financial.

   •   Citicorp Trust Bank, FSB originated mortgage loans in California with APRs
       exceeding 20% in 2001, the last year for which data is available



                                                                                            4
Recommendations

  In light of these disturbing findings, CRC recommends the following:

  •   Meet the Equality Benchmark. Financial institutions must set serious lending
      goals to ensure that lending performance mirrors the racial and income
      demographics of this diverse state. Lenders should comply with CRC’s Fair
      Lending Principles (see Appendix VII).

  •   Expand branch presence. Meaningful access to low cost products depends on
      branch access and presence. HSBC has six branches serving upper income clients
      in California, while at the same time it has 177 subprime Household Finance and
      Beneficial branches that will offer higher cost products to California’s diverse
      population. No bank should have fewer bank branches in California than its
      subprime affiliate.

 •    Offer best loan products. Financial institutions must make their best and lowest
      cost loan products available to all qualified applicants through all lending
      channels, including the bank, prime lending unit, or subprime affiliate. Many
      applicants for subprime loans can qualify for lower cost prime loans. Banks must
      ensure that these borrowers receive the prime loans they deserve. Given the
      overrepresentation of people of color in the subprime market, the failure to offer
      the best and lowest cost products to all home loan applicants has fair lending
      implications.

 •    Community Reinvestment Act (CRA) beyond bank branches. Financial
      institutions should not be allowed to circumvent the CRA, taking profits, but
      making no investment, in California communities. Countrywide Bank and Chase
      Manhattan both propose to provide banking services out of retail branch outlets in
      California, but have no reinvestment plans for the state. CRA-covered lenders are
      more likely to make credit available in underserved communities, and to help
      revitalize these neighborhoods.

 •    Protective Legislation. The cities of Oakland and Los Angeles have passed anti
      predatory lending ordinances designed to protect residents from unscrupulous
      lending practices in the subprime market. Each also contains a requirement that
      borrowers have access to home loan counseling services before signing complex
      home loan documents. These efforts help to ensure that borrowers have access to
      credit that can help them build and preserve wealth, not strip it. Industry inspired
      initiatives by Congress, bank regulators, and credit rating agencies threaten to
      undermine these local efforts to preserve homeownership and promote fair lending.




                                                                                           5
HOME PURCHASE LENDING: THE EQUALITY BENCHMARK

The Importance of Home Purchase Lending

Homeownership comes with numerous benefits for both household and community,
including: stability of place that allows families to grow and prosper; pride of ownership
that leads to community involvement and neighborhoods with a strong quality of life; and
tax savings and fixed housing costs which can provide immediate financial benefit.
Decent and affordable housing is a critical element of any vibrant neighborhood.

Yet perhaps the greatest benefit of all is the ability of home ownership to create
accumulated assets and equity, which can then be translated into funds for education,
starting a small business, retirement savings, or even a downpayment for housing and
wealth-building for the next generation. Home ownership remains the primary source of
wealth for most Americans and as such its importance cannot be understated.

Equality Benchmark Methodology: Who Really Gets Home Loans?

To assess lender performance in providing equal access to credit to all communities, the
California Reinvestment Committee has developed the “Equality Benchmark.” The
benchmark is designed to compare an institution’s record of lending against the estimated
household demand for such loans in the communities in which the bank does business.

Lenders should make credit available to African American and Latino households in
proportion to their presence in California communities. This report looks exclusively at
African American and Latino home loan applicants as they have historically been the
most underserved by mainstream financial institutions.

The percentage of African American and Latino households in each city is compared to
the percentage of applications taken from, and originations made to, these groups by each
of the thirteen lenders analyzed. One (1) point was given to a lender each time the lender
met or exceeded the Equality Benchmark. For more on the Equality Benchmark, see the
methodology section of this report, beginning on p. 26, after the Recommendations
section.

Appendix I contains charts that reveal the performance of the thirteen bank lenders
compared to the Equality Benchmark for outreach and lending to African Americans and
Latinos in five (5) California cities.




                                                                                           6
Key Findings

California’s bank lenders failed to serve African American and Latino households in the
state. This is shown in low outreach efforts and origination rates, as measured against
CRC’s Equality Benchmark. The findings are disturbing:

                EQUALITY BENCHMARK SCORING
                       BANK LENDERS
Lender                                   Score     Total Points Achievable
National City                                6                         20
World Savings                                4                         20
Bank of America                              4                         20
Wells Fargo                                  4                         20
California Bank & Trust                      3                         20
Indymac Bank, FSB                            3                         20
US Bank                                      2                         20
Bank of the West                             2                         20
Citibank                                     2                         20
Chase Manhattan                              1                         20
Union Bank of California                     1                         20
Countrywide Bank and Home Lns                0                         20
Washington Mutual                            0                         20

  •      Each of the bank lenders analyzed failed the Equality Benchmark for outreach and
         lending to African American and Latino homebuyers. National City led all lenders,
         but with only six (6) Equality Benchmark points out of a possible twenty (20)
         points available to each lender, or a 30% success rate. Each bank lender would
         have received an “F” grade under the Equality Benchmark analysis.

  •      Two banks were noteworthy for their poor performance. Countrywide and
         Washington Mutual, two of the largest lenders in the state and nation, received no
         (0) points. Countrywide and Washington Mutual failed to conduct outreach and to
         lend proportionally in every instance to those wishing to purchase homes.

   •     Five banks performed worse in 2002 than in 2001, taking a step backward in
         efforts to provide equal access to credit:

             o Bank of America earned 2 fewer points this year than last;

             o Chase Manhattan earned 1 less point;

             o U.S. Bank, the strongest performer last year, earned 8 fewer points;

             o Washington Mutual earned 1 fewer point in 2002 than in 2001; and

             o World Savings earned 2 fewer points than last year.


                                                                                          7
                              Lender Scores 2002 v 2001

        12

        10

         8

         6

         4

         2

         0




                                      Ba nk




                                      W yw
             N

                   W

                        Bo

                        W

                        C

                                      In

                                      U ac



                                      C

                                      C

                                      U

                                      C
              at




                                        S




                                        ha



                                        ou
                          BT




                                        iti



                                        ni
                                         dy




                                         aM ide
                     or



                          el




                                          nk
                           fA




                                           ba es



                                            on
                lC




                                            Ba
                            ls




                                             nt
                       ld




                                             se
                                             m




                                              u
                                               of

                                               nk t




                                               r
                 ity




                                                  W
                                         2002    2001


•   African American and Latinos fared worst in Los Angeles and San Diego.

        o Lenders in L.A. earned only 3 points out of a possible fifty-two (52) points
          available in each city, a success rate of 6%.

        o Lenders in San Diego did only slightly better, earning a total of four (4)
          points, for a success rate of 8%.

•   African American home purchase loan applicants were the most underserved and
    continued to have the greatest difficulty accessing credit.

        o In all five cities combined, the thirteen bank lenders scored a mere 6
          points out of a possible one hundred thirty (130), a success rate of 5%.

        o No lender met the Equality Benchmark for outreach or lending to African
          Americans in Oakland or San Diego.

•   Overall, bank lenders performed miserably in providing credit to home buyers.

        o All thirteen lenders combined, hit the Equality Benchmark a total of 32
          times, out of a possible two hundred sixty (260), a success rate of 12%.
          This is worse than the 14.6% Equality Benchmark success rate in 2001.

        o Only 6 points were earned for outreach or lending to African American
          households; the remaining 26 points were for efforts to reach Latinos.


                                                                                       8
Outreach and Lending To African American Households

   •       5 lenders met the Equality Benchmark for home purchase applications from
           African Americans:

              o Bank of the West, Chase Manhattan and U.S. Bank met the Equality
                Benchmark for home purchase applications from African Americans in
                Fresno;

              o California Bank & Trust met the Benchmark in this category in Los
                Angeles;

              o Citibank met the Benchmark in Sacramento;

              o None of these 5 lenders met the Benchmark in more than one city.

   •       None of the other six (6) lenders was able to achieve a proportional amount of
           home purchase loan applications from African Americans in any city.

   •       Only Bank of the West, with its low volume, was able to lend proportionally to
           African Americans in any city, making 2 out of its 16 loans in Fresno to African
           American households.



              Home Purchase Lending to African American Households
                                in Fresno 2002

      14
      12
      10
       8
  %
       6
       4
       2
       0
              Ba


                      Ba


                           C


                           C


                           C


                           C


                           In


                           N


                           U


                           U


                           W


                           W


                           W
                             al


                             ha


                             i ti


                             ou




                             at


                             ni


                             S
                              dy




                               as


                               el


                               or
                nk


                        nk




                                 ba




                                  on
                                  ifo




                                  io




                                   Ba




                                   ls
                                    se




                                    nt




                                    ld
                                    m




                                     hi
                                      na
                 of


                                      of


                                      rn




                                      nk


                                       ry


                                       ac




                                       Fa
                                       ng
                                        Ba


                                        nk




                                        Sa
                                        M
                                         ia




                                         lC
                                          w
                     Am


                                          th




                                           rg
                                           to
                                           an




                                            Ba




                                            nk




                                            vi
                                            id
                                             e


                                             Ba




                                             ity




                                              n


                                              o


                                               ng
                                               e
                                                ha
                       er




                                                nk
                                                W




                                                 of




                                                 M
                                                  nk




                                                  Ba




                                                  s
                         ic




                                                   tta
                                                    es




                                                    ,F




                                                    ut
                                                    C
                            a




                                                      &




                                                      nk




                                                       ua
                                                       al
                                                       t




                                                       n




                                                        SB
                                                         Tr




                                                         ifo




                                                          l
                                                          an
                                                            us




                                                             rn
                                                              d




                                                               ia
                                                                t




                                                                  H
                                                                   om
                                                                      e
                                                                        Ln
                                                                          s




                                Lending to African Americans   Equality Benchmark




                                                                                              9
Outreach and Lending To Latino Households

   •    National City earned all six of its Equality Benchmark points for outreach and
        lending to Latinos. Bank of America, Wells Fargo, and World Savings each
        earned four (4) Equality Benchmark points for outreach and lending to Latinos.

   •    National City demonstrated strong lending to Latinos in Los Angeles, originating
        49.4% of its home purchase loans to Latino borrowers there.


             Home Purchase Lending to Latino Households in Los
                              Angeles 2002

       60

       50

       40

       30
  %




       20

       10

       0
            Ba


                   Ba


                            C


                            C


                            C


                            C


                            In


                            N


                            U


                            U


                            W


                            W


                            W
                              al


                              ha


                              iti


                              ou




                              at


                              ni


                              S
                               dy




                               as


                               el


                               or
              nk


                     nk




                                  ba
                                  ifo




                                  on
                                  io




                                   Ba




                                   ls
                                    se




                                    nt




                                    ld
                                    m




                                     hi
                                      na
                                      rn
               of


                        of




                                      nk


                                       ry


                                       ac




                                       Fa
                                       ng




                                        Sa
                                        Ba


                                        nk
                                        M
                                         ia




                                         lC
                                         w
                   Am


                          th




                                          to


                                          rg
                                           an




                                           Ba




                                           nk




                                           vi
                                            id
                            e


                                             Ba




                                             it y




                                              n


                                              o


                                              ng
                                              e
                                               ha
                    er




                                                nk
                                                W




                                                 of




                                                 M
                                                  nk




                                                  Ba




                                                  s
                      ic




                                                   tta
                                                    es




                                                    ,F




                                                    ut
                                                    C
                        a




                                                      nk
                                                      &




                                                      ua
                                                       al
                                                       t




                                                       n




                                                        SB
                                                         Tr




                                                         ifo




                                                          l
                                                          an
                                                            us




                                                            rn
                                                             d
                                                              t




                                                               ia
                                                                H
                                                                  om
                                                                     e
                                                                       Ln
                                                                         s




                                 Lending to Latinos   Equality Benchmark




                                                                                         10
PEOPLE OF COLOR PAY MORE: PRIME V. SUBPRIME LENDING

Access to High Cost Credit

These days, almost anyone can get a loan. But at what cost? For years, communities of
color and low income neighborhoods struggled to access loans to buy homes, access
home equity, and build wealth for future generations. Yet, a new dimension has been
added to the battle for equal access to credit. Now, traditionally underserved communities
in California are also being flooded with loan opportunities, but it is high cost, subprime
credit that they can ill afford.

Subprime lending generally refers to higher cost lending that is targeted to borrowers
with impaired credit who might not otherwise qualify for a loan. The last few years have
seen an explosion in subprime lending. Subprime lending volume increased from over
$18 billion dollars in California in 1998, to over $62 billion dollars in 2002. The chart
below depicts subprime lending volume in California, in dollars, for the last 5 years. One
can see the large increase in the past 2 years.


                         Subprime Dollars in California: 1998-2002



              70000000

              60000000

              50000000

              40000000
  $ (000's)
              30000000

              20000000

              10000000

                    0


                                   1998   1999   2000   2001   2002




Legitimate subprime lending can enable credit-impaired households to purchase a house
or access home equity. Yet subprime lending is also ripe for abuse. Subprime lenders
generally charge borrowers more money in the form of higher interest rates, higher up
front points and fees, or all of the above. Subprime loans are also more likely to include
additional terms, such as prepayment penalty provisions or credit insurance products,
which are not in the borrower’s interest.




                                                                                         11
A major problem arises when subprime lending goes beyond fairly compensating the
lender for taking on the added risk of lending to a person with a poor credit history. CRC
and others have estimated that up to half of all subprime borrowers could qualify for a
lower cost prime loan. Even for borrowers with impaired credit, it is unclear that their
credit risk warrants the often much higher rates and fees that they pay. For example,
loans with APRs over 20% are hard to justify in a very low interest rate environment,
where prime rates are at 6%. Subprime borrowers often pay more than their credit
profiles necessitate.

This is all the more troubling, as African American and Latino borrowers are over-
represented in the subprime market. As subprime lending seems to disproportionately
impact borrowers and communities of color, the California Reinvestment Committee
views this as a civil rights, fair lending, and economic justice issue. How much you pay
for a loan should not depend on where you live or what you look like.

Subprime Methodology

As subprime lending occurs most often, though not exclusively, in the refinance and
home improvement markets where homeowners have accumulated wealth that
unscrupulous lenders can steal, this analysis considers all home purchase, home
improvement and refinance loans originated in the five survey cities of Fresno, Los
Angeles, Oakland, Sacramento, and San Diego. For the purposes of this analysis, all
loans sought and originated from lenders on HUD’s Subprime and Manufactured Home
Lender List are considered subprime.

The lending records of the thirteen banks and bank affiliated prime lenders were
analyzed. These results were compared against that for the thirteen most active subprime
lenders in the state. Again, this analysis focuses on outreach and lending to African
American and Latino home loan applicants, as these groups historically have been the
most discriminated against and underserved by mainstream financial institutions.




                                                                                        12
Outreach Efforts: Applications From African American and Latino
Households

   •   Subprime lender outreach to African American households was much more
       successful than prime lender outreach in all five of the survey cities.

                In the city of Oakland, the thirteen subprime lenders took in 44% of their
                home loan applications from African Americans, compared to 23.2% of
                home loan applications of the thirteen prime lenders coming from African
                Americans.

                Similar ratios existed in the other cities: Fresno (8.2% v. 3.4%), Los
                Angeles (15% v. 5.6%), Sacramento (20.2% v. 8.5%), and San Diego
                (7.1% v. 2.7%).




                Outreach to African Americans in 5 Cities: Top Prime v Top
                                Subprime Lenders in 2002

           45

           40

           35

           30

           25
       %
           20

           15

           10

            5

            0
                  OAKLAND       FRESNO         LOS ANGELES       SACRAMENTO   SAN DIEGO

                                 Prime Applications   Subprime Applications




                                                                                          13
•   Subprime lenders took a greater percentage of applications from Latino borrowers
    than did their prime counterparts in each of the five survey cities.

                In San Diego, 22.1% of subprime applications came from Latino
                households, as compared to 11.9% for bank and bank-affiliated prime
                lenders.

                Similar ratios existed in other cities: Fresno (34.9% v. 24.6%), Los
                Angeles (30.1% v. 21.7%), Oakland (18% v. 15%), and Sacramento
                (19.9% v. 15.7%).




             Outreach to Latinos in 5 Cities: Top Prime v Top Subprime
                                  Lenders in 2002

        35

        30

        25

        20
    %
        15

        10

         5

         0
               OAKLAND        FRESNO        LOS ANGELES      SACRAMENTO    SAN DIEGO

                              Prime Applications   Subprime Applications




                                                                                       14
Originations Rates: Loans to African American and Latino Households

   •   Disparities were evident when looking at originations to African American
       applicants, as well. Again, subprime lenders made a significantly greater
       percentage of loans to African American applicants than did the thirteen prime
       lenders, in each of the five cities.

                 In the city of Sacramento, the thirteen subprime lenders made 18.7% of
                 their home loans to African Americans, compared to 7.5% for the thirteen
                 prime lenders.

                 Similar ratios existed in the other cities: Oakland (42% v. 22.7%), Los
                 Angeles (12.8% v. 4.9%), San Diego (6.6% v. 2.4%), and Fresno (7.3% v.
                 2.9%).


                Lending to African American Households in 5 Cities: Top
                         Prime v. Top Subprime Lenders 2002

           45
           40
           35
           30
           25
       %
           20
           15
           10
            5
            0
                 OAKLAND       FRESNO      LOS ANGELES     SACRAMENTO   SAN DIEGO

                                    Prime Loans   Subprime Loans




                                                                                        15
•   Subprime lenders made a greater percentage of loans to Latino borrowers than did
    their prime counterparts in all five-survey cities, as well.

            In Fresno, 36.8% of loans made by the thirteen subprime lenders went to
            Latinos, compared to 20.5% of prime loans.

            In Sacramento subprime lenders saw 25.4% of their loans go to Latino
            borrowers compared to 16.2% for the top prime lenders.

            Subprime lenders likewise originated a larger percentage of loans to
            Latino households in Oakland, (20.6% v. 14%), Los Angeles (30.8% v.
            20.7%), and San Diego (22.1% v. 11.2%).


        Lending to Latino Households in 5 Cities: Top Prime v Top
                        Subprime Lenders in 2002

       40
       35
       30
       25
    % 20
       15
       10
        5
        0
             OAKLAND       FRESNO       LOS ANGELES     SACRAMENTO   SAN DIEGO

                                Prime Loans   Subprime Loans




                                                                                   16
FINANCIAL CORPORATIONS WITH PRIME AND SUBPRIME
ARMS: TWO-TIER LENDING
CRC compared the lending patterns of six financial corporations that currently own both
prime and subprime lenders. Below are the banks and mortgage companies analyzed,
along with their subprime lending affiliates. “Affiliates” here refers to those subprime
lenders that are owned by a corporation that also owns a bank or prime lender.

   •   Citibank is affiliated with subprime lenders Citifinancial and Citicorp Trust Bank,
       FSB;
   •   Countrywide Bank and Countrywide Home Loans are affiliated with subprime
       lender Full Spectrum Lending;
   •   HSBC is affiliated with subprime lenders Household Financial, Beneficial and
       Decision One;
   •   National City is affiliated with subprime First Franklin Financial;
   •   H&R Block is affiliated with subprime Option One Mortgage; and
   •   Washington Mutual is affiliated with subprime Long Beach Mortgage.

Comparing the lending patterns of prime and subprime affiliated lenders suggests that
financial institutions have established a dual system of credit for minority borrowers
within their own larger corporate structure. Subprime loan applicants and borrowers are
much more likely than prime loan applicants and borrowers to be people of color. This
dynamic is troubling, as many subprime borrowers qualify for lower cost prime loans.
The six (6) corporations listed above should guarantee that all of their customers get the
best loan product for which they qualify, whether at the subprime lender or the bank
lender.

Again, disparities in lending to African American and Latino applicants were evident. In
looking at the lending of the six prime lenders and their higher cost subprime affiliates,
CRC found the same patterns to repeat themselves:

Outreach Efforts: Applications From African American and Latino
Households

   •   Subprime affiliate applicants were more likely to be African American than prime
       affiliate applicants in all five survey cities. In each city, the disparities were large.

               In Los Angeles, 14% of all subprime affiliate applications came from
               African American loan seekers, compared to 5.2% for their bank affiliates.

               The patterns were similar in Oakland (43.8% v. 20.3%), Fresno (7.1% v.
               3.7%), Sacramento (21% v. 8%), and San Diego (8.4% v. 2.5%).




                                                                                             17
               Outreach to African American Households in 5 Cities: Banks v.
                                 Subprime Affiliates in 2002

               45
               40
               35
               30
               25
             %
               20
               15
               10
                5
                0
                    FRESNO      LOS ANGELES          OAKLAND         SACRAMENTO        SAN DIEGO

                                   Prime Applications     Subprime Applications




•   Subprime lenders also received a greater percentage of applications from Latino
    borrowers than did their prime affiliates in all five cities.

               In San Diego, subprime affiliates took in 24.9% of applications from
               Latinos, compared to 12% for prime affiliates.

               The patterns were similar in Oakland (22.9% v. 11.8%), Fresno (34.9% v.
               23.8%), Los Angeles (34.6% v. 21.3%) and Sacramento (25.4% v.
               16.1%).


                Outreach to Latino Households in 5 Cities: Banks v
                            Subprime Affiliates in 2002

        35

        30

        25

        20
    %
        15

        10

        5

        0
               FRESNO      LOS ANGELES        OAKLAND         SACRAMENTO          SAN DIEGO

                              Prime Applications   Subprime Applications




                                                                                                   18
Originations Rates: Loans to African American and Latino Households

   •   Inequities are evident when looking at originations to African American
       applicants. Here, subprime lenders made a greater percentage of loans to African
       American applicants than did their prime affiliated lenders, in each of the five
       cities.

                 Disparities were greatest in Los Angeles (where 13% of loans made by the
                 six subprime went to African Americans, versus 3% for their prime
                 affiliates);

                 In Oakland the figures were 41.1% v. 16.8%;

                 In San Diego the figures were 7.3% v. 2%;

                 In Fresno, loans to African Americans accounted for 5.9% of all loans
                 from the six subprime lenders, versus 2.9% for their bank counterparts;
                 and

                 The numbers in Sacramento were 19.3% and 7.4%, respectively, for
                 subprime and bank affiliates.


                Lending to African American Households in 5 Cities:
                        Banks v Subprime Affiliates in 2002

           45
           40
           35
           30
           25
       %
           20
           15
           10
           5
           0
                  FRESNO   LOS ANGELES     OAKLAND       SACRAMENTO   SAN DIEGO

                                  Prime Loans   Subprime Loans




                                                                                           19
•    Latinos also had relative difficulty securing a prime loan from one of the six
     prime lenders.

            Disparities were greatest in Oakland (27.1% of subprime loans v. 9.7% of
            prime loans went to Latinos).

            The breakdown in the other cities was as follows: Fresno (37.5% v. 19%),
            Los Angeles (36.6% v. 20.7%), Sacramento (36.5% v. 17.2%), and San
            Diego (23.5% v. 11%) for subprime and bank affiliates.



             Lending to Latino Households in 5 Cities: Banks v.
                        Subprime Affiliates in 2002

      40
      35
      30
      25
    % 20
      15
      10
       5
       0
            FRESNO       LOS ANGELES      OAKLAND        SACRAMENTO   SAN DIEGO

                                 Prime Loans   Subprime Loans




                                                                                      20
THE COST OF CREDIT: AT WHAT PRICE SUBPRIME?
The difference between a prime and subprime loan can be substantial, according to data
from the state Department of Corporations for consumer loans originated in California.

   •   Prime Rates in 2002. Freddie Mac reports in 2002 that the average interest rate
       on a 30 year fixed rate home loan was 6.54%, and the average points paid on such
       a loan was .6%.

   •   Subprime Rates. In 2002, several subprime lenders charged more than 15%
       Annual Percentage Rate (APR) on California loans over $10,000.

   •   Citigroup Subprime Lenders

                   Citifinancial Services originated 5,704 loans in amounts over $10,000.
                   5,337 of these loans were secured by real estate. For all loans in amounts
                   over $10,000, Citifinancial Services originated:
                           o 1,630 loans with APRs from 15% to 19.99%;
                           o 935 loans with APRs from 20% to 24.99%; and
                           o 148 loans with APRs from 25% to 29.99%.

                   In 2001, the most recent year for which data is available, Citicorp Trust
                   Bank, FSB (formerly known as Travelers Bank and Trust, FSB) originated
                          o 160 loans with APRs from 15% to 19.99%, and
                          o 28 loans with 20% to 024.99% APR.
              Citigroup Subprime Lenders: APRs over 15% for CA
                             Loans over $10,000


            1800
            1600
            1400
            1200
            1000
  # Loans
             800
             600
             400
             200
              0
                     APRs 15%-19.9%             APRs 20%-24.9%           APRs 25%-29.9%

               Citifinancial   Citifinancial Services   Citicorp Trust Bank, FSB (2001)




   •   Option One Mortgage originated:
         o 7 loans with APRs from 15% to 19.99%; and
         o 5875 loans with variable rates based on an Index.


                                                                                            21
•   HSBC/Household

       o Household Finance originated 18,689 loans in amounts over $10,000. Of
         these, 13,012 loans were secured by real estate. Of the loans in amounts
         over $10,000, Household Finance originated:
             • 5012 loans with APRs from 15% to 19.99%;
             • 2089 loans with APRs from 20% to 24.99%;
             • 1589 loans with APRs from 25% to 29.99%; and
             • 40 loans with APRs from 30% to 34.99%.

       o Beneficial originated 18,626 loans in amounts over $10,000, of which
         14,784 were secured by real estate. For loans over $10,000, Beneficial
         originated:
             • 5675 loans with APRs from 15% to 19.99%,
             • 1444 loans with APRs from 20% to 24.99%, and
             • 3045 loans with APRs from 25% to 29.99%.


                   Household International Subprime Lenders: APRs
                        over 15% for CA Loans Over $10,000

            6000

            5000

            4000

            3000

            2000

            1000

              0
                   APRs 15%-19.9%   APRs 20%-24.9%   APRs 25%-29.9%    APRs 30%-34.9%

                                      Household Finance   Beneficial



•   Washington Mutual Finance originated 5571 loans over $10,000, 5504 of which
    are secured by real estate. For loans over $10,000, WaMu Finance originated:
        o 37 loans with APRs from 15% to 19.99%;
        o 22 loans with APRs from 20% to 24.99%; and
        o 5,506 loans with variable rates based on an Index.

•   Wells Fargo Financial originated 3433 loans with APRs from between 15% and
    19.99%. All of these loans were secured by real estate.




                                                                                        22
CONCLUSIONS
No Equal Access to Prime Home Purchase Loans. California’s bank lenders performed
poorly in relation to CRC’s Equality Benchmark. National City outperformed other
lenders, yet earned a mere six (6) points out of a possible twenty (20) points for
proportional outreach and lending. Countrywide and Washington Mutual earned no
points.

Financial institutions are continuing to fail in their efforts to outreach to California’s
African American and Latino households, with African Americans continuing to fare the
worst. The Equality Benchmark was met twenty-six (26) times with respect to outreach
and lending to Latino households, and only six (6) times with respect to African
American households. CRC supports recent bank efforts to target low cost, prime
products to the Latino community. At the same time, banks and thrifts must not forget the
banking needs of the African American community.

African Americans and Latino Borrowers Pay More. Unfortunately, the race and
neighborhood of home loan applicants remains a factor in how much they will pay for
their loan. African American and Latino households are over-represented in the subprime
market. The thirteen subprime lenders originated a greater percentage of their loans to
African American and Latino borrowers than did the thirteen bank lenders in all five
survey cities. With no way to determine from HMDA data that subprime sales practices
and loan terms are fair and that loan pricing accurately reflects credit risk, these racial
disparities are distressing.

A Dual System of Credit Within Institutions. Financial corporations that have both
prime and subprime lending arms are profiting by charging subprime rates to prime
customers. Citigroup, to its credit, has developed programs to move qualified subprime
loan applicants and existing subprime customers into prime loans, and has agreed to
publicly report on its progress in achieving these goals. Yet only 1% of those subprime
customers that Citi deems potentially qualified for a prime loan are able to get one. Other
institutions that offer both prime and subprime loans are in varying stages of
acknowledging the problem and working to address it. Yet no bank is able guarantee that
subprime home loan applicants are as well served as bank customers, and no institution
can justify charging 20% APR on a home loan when interest rates are at 6%. Those who
lose in this equation are more likely to be from groups traditionally underrepresented in
the financial mainstream. The failure to effectively originate the best loan product or
seamlessly “refer up” qualified applicants for prime loans is a fair lending issue that must
be addressed by the financial institutions involved, their regulators, and policy makers.

Subprime Can Be Costly. The difference between prime and subprime loans can be the
difference between wealth creation and wealth stripping. State data reinforces this
concern, revealing that real estate secured loans in California originated by subprime
lenders can carry Annual Percentage Rates in excess of 20%, even at a time when interest
rates hovered below 6%. The cost of credit should never be so high that it jeopardizes
homeownership and wealth creation.


                                                                                          23
RECOMMENDATIONS
In light of this study’s findings and conclusions, CRC recommends the following:

   •   Meet the Equality Benchmark. Financial institutions must set serious lending
       goals to ensure that lending performance mirrors the racial and income
       demographics of this diverse state. Specifically, applications from, and loans to,
       African American and Latino households should match the proportion of these
       households in California’s communities. The Government Sponsored Enterprises
       Fannie Mae and Freddie Mac, which have considerable influence over lending
       behavior, should increase their affordable housing goals, develop better products
       and provide more funding to aid lenders in serving very low-income and
       traditionally underserved communities.

   •   Strengthen outreach and marketing. Banks and prime lending mortgage
       companies must focus outreach and marketing efforts on low-income and
       minority people and neighborhoods. Bank lenders need to do a better job of
       competing with subprime lenders by making their low cost prime products
       accessible to underserved communities. Regulators must examine the marketing
       efforts of prime lenders and their subprime affiliates to make sure that
       communities of color are not targeted for higher cost products. Heightened
       regulatory scrutiny is especially needed with corporations that hide their
       substantial subprime lending activities by reporting these loans together with their
       prime loans, so the public cannot distinguish one from the other.

   •   Expand branch presence. Meaningful access to low cost products depends on
       branch access and presence. Financial institutions must open full service branches
       in underserved neighborhoods if they are serious about expanding their market
       share in emerging communities. HSBC has 6 branches serving upper income
       clients in California, while at the same time its subprime business operates out of
       177 Household Finance and Beneficial branches that will offer higher cost
       products to California’s diverse population. No bank should have fewer bank
       branches in California than its subprime affiliate. Banks can best reach new
       markets and communities by being part of them.

  •    Offer best loan products. Financial institutions must make their best and lowest
       cost loan products available to all qualified applicants through all lending
       channels, including the bank, prime lending unit, or subprime affiliate. Up to half
       of all subprime loan applicants could qualify for a prime loan. These borrowers
       should receive a prime loan, regardless of whether they first approach a subprime
       retail office in their neighborhood, or talk to a subprime broker doing business in
       their community. Given the overrepresentation of people of color in the subprime
       market, the failure to offer the best and lowest cost products to all home loan
       applicants has fair lending implications. An applicant’s race or neighborhood
       should not determine how much she must pay for her loan.



                                                                                         24
•   Community Reinvestment Act (CRA) beyond bank branches. Financial
    institutions should not be allowed to circumvent the CRA by making profits
    nationally but investing minimally in local communities. Countrywide Home
    Loans is one of the largest lenders nationally, yet has no CRA responsibilities. Its
    affiliate, Countrywide Bank, has opened 15 retail offices that provide banking
    services in California, yet even the Bank has no public CRA plan for the state at
    this time. Countrywide maintains that its branches, complete with “Countrywide
    Bank” signs, bank staff, assistance in opening bank accounts, and a “lock box”
    where deposits are left and picked up by non employees, are not branches and
    therefore Countrywide has no CRA responsibility in California.

Additionally, Chase Manhattan is seeking to establish a federally chartered thrift under
the Office of Thrift Supervision for its 55 retail outlets in California, but maintains it
has no CRA responsibility for the communities in which its branches are located. This
legal restructuring by Chase has the potential to result in circumvention of not only the
CRA, but also consumer protection and anti predatory lending laws from which
federally chartered thrifts argue they are exempt.

These legal maneuvers by banks, with the blessing of their bank regulators, harm local
communities. Regulators should give meaning and effect to the promises of the
Community Reinvestment Act, and banks should accept responsibility to reinvest in
the very same communities from which they receive deposits, do business and profit.
Expanding CRA scrutiny to more lenders will result in more lending and investment in
underserved communities.

•   Protective Legislation. If federal and state consumer protection, anti predatory,
    and fair lending laws remain inadequate, as currently, then local ordinances should
    and will be developed to protect local residents. The cities of Oakland and Los
    Angeles have passed anti predatory lending ordinances designed to protect
    residents from unscrupulous lending practices in the subprime market. Each also
    contains a requirement that borrowers have access to home loan counseling
    services before signing complex home loan documents. These efforts help to
    ensure that borrowers have access to credit that can help them build and preserve
    wealth, not strip it.

Yet the banking industry has been aggressively lobbying Congress, bank regulators,
and credit rating agencies (such as Fitch, Moody’s, and S&P) to undermine these local
efforts to preserve homeownership and promote fair lending. The California Supreme
Court is expected to soon rule on the final challenge to Oakland’s anti predatory
lending ordinance. If, as expected, Oakland and Los Angeles are free to implement
their ordinances, the result will be two large California cities where the public can
have confidence in the legitimacy of the subprime market, and unscrupulous lenders
will be deterred from, or punished for, abusive lending practices.




                                                                                       25
METHODOLOGY
The California Reinvestment Committee’s (CRC) tenth annual home mortgage lending
report, Who Really Gets Home Loans? Year Ten, reviews home-purchase lending by
thirteen of California’s largest bank lenders. The report also explores the relationship
between prime lending, subprime lending, and race, focusing on lending to African
American and Latino households. The report analyzes Home Mortgage Disclosure Act
(HMDA) data for 2002, the most recent year for which data is publicly available.

Geography. This report looks at lending patterns in five California cities: Fresno, Los         Deleted: ¶
Angeles, Oakland, Sacramento, and San Diego. These cities were selected for their
diverse populations and geographic location, as well as for their size, which was meant to
ensure sufficient market presence by survey lenders. Fresno was selected to highlight the
special needs of California’s rural communities.

Data. The analysis relies on Home Mortgage Disclosure Act (HMDA) data that are
collected by the Federal Financial Institutions Examination Council. In order to compare
lender performance to the number of households in each survey city, 2000 Census Data is
used. Additionally, HUD’s Subprime and Manufactured Home Lenders List is used to
characterize and identify lenders as either prime or subprime. Finally, loan price data
reported to the California State Department of Corporations by certain mortgage and
finance lenders is evaluated.

Lenders. Banks were selected based on their branch and lending presence in the state.
These thirteen lenders range from the largest statewide mortgage lenders Countrywide
Home Loans, Washington Mutual, and Wells Fargo, to lenders such as California Bank &
Trust and Bank of the West, which have smaller, though important, market share. See
Appendix II for a list of institutions analyzed.

Data for some institutions are combined with affiliated prime lenders that also showed
mortgage activity in California in 2002. The following describes the treatment for various
financial institutions:
    • Data for Citibank combines data for three lenders: Citibank FSB, Citibank West,
        FSB, and CitiMortgage Inc.
    • National City combines data for National City Mortgage and National City Bank.
    • U.S. Bank includes data for both U.S. Bank NA and U.S. Bank North Dakota.
    • Wells Fargo includes data only for its largest lender in the state, Wells Fargo
        Home Mortgage. WFHM is treated in this report as a prime lender, even though a
        large number of its mortgage loans are believed to be subprime, and accordingly
        WFHM might be one of the state’s biggest subprime lenders.




                                                                                           26
Home Purchase Analysis. The report begins with an analysis of home-purchase lending
by the thirteen largest banks and their prime lending affiliates in California. Home-
purchase lending is highlighted, as home-ownership is the main source of wealth for most
American families.

The Home Purchase analysis is based on the number of home-purchase loan applications
taken from, as well as those originated to, African American and Latino households by
the thirteen institutions. Applications are highlighted as they represent a measure of a
lender’s outreach efforts. This outreach effort is important, as it paints a picture of how
effectively financial institutions market their products to African American and Latino
households. Loans originated represent the actual flow of credit that is critical to asset
creation and neighborhood revitalization.

Equality Benchmark. The Equality Benchmark measures lender performance in making
credit equally accessible to all borrowers. Specifically, CRC compares each financial
institution’s outreach effort, represented by the percentage of its total applications that are
taken from different households, to the proportion of such households in each of the five
survey cities, relying on 2000 Census data. Similarly, each financial institution’s loan
performance, as represented by the percentage of its total loan originations to each race
group, is compared to the proportion of such households in each city.

Specifically, African American households represent 12.6%, 36.9%, 14.1%, 7.3%, and
8.4% of households in the cities of Los Angeles, Oakland, Sacramento, San Diego, and
Fresno, respectively. Latino households represent 33% 13.7%, 15.9%, 17.4% and 31.4%
of all households in these same cities, respectively.

As noted above, this report looks at the percentages of total applications and originations       Deleted: ¶
                                                                                                  ¶
allocated to each race group. HMDA data include race categories of “Other” and                    ¶
“Information not provided.” CRC has removed from this analysis the large percent of
loans with no race information. Thus, in this report, an institution’s Equality Benchmark
score is determined by analyzing only those loans for which there is race data. A bank’s
record of serving Latino applicants, for example, is determined by looking at bank
applications from Latinos and bank loans to Latinos, as a percentage of all loans for
which the bank collects and reports the applicant’s race. Whether this approach has the
effect of overstating or understating the percent of loans to underserved borrowers
depends on the actual and unknown racial composition of the borrowers whose loans are
here excluded.

A lender had to report at least ten applications with applicant race data, or originate at
least ten loans containing applicant race data, in order to receive any consideration under
the Equality Benchmark analysis for each city. If a financial institution was unable to
report race data for ten applications or ten loans in any of the California cities analyzed,
that institution would be ineligible to receive a point under CRC’s Equality Benchmark,
and would receive a “n/a” code. In this way, CRC has attempted to balance the desire to
look primarily at racial equity in a lender’s portfolio, versus the reality that such small




                                                                                            27
lending volumes do not provide meaningful insight into a lender’s efforts to provide
equal access to credit.

If a lender came within 1% of the Equality Benchmark, that lender was awarded the
Equality Benchmark point.

Subprime Lending. Next, the lending patterns of the top thirteen subprime lenders in the
state, based on 2001 market share data, was analyzed for each of the five study cities.
This analysis expands upon the home purchase analysis by also including home
improvement and refinance loans, which allow borrowers to enhance their home’s value,
and to access accumulated home wealth. Subprime lending patterns were compared to the
home purchase, home improvement and refinance lending patterns of the thirteen prime
lenders analyzed above.

Finally, the home lending patterns of six bank, prime lenders and their subprime affiliates
were compared. The term “affiliate” is used here to signify different lending companies
that are owned by the same corporation. The following describes the prime and subprime
pairings that were used in this analysis:

   •   Citibank, Citibank (West) and CitiMortgage Inc. were compared to Citigroup
       subprime subsidiaries CitiFinancial Services, Inc., CitiFinancial Mortgage
       Company, and Citicorp Trust Bank, FSB;
   •   Countrywide Home Loans was compared to its subprime affiliate Full Spectrum
       Lending, which are both affiliated with Treasury Bank;
   •   H&R Block Mortgage was compared to its subprime affiliate Option One
       Mortgage. Option One last year applied to establish a savings and loan;
   •   HSBC Mortgage and HSBC Bank are compared to subprime lenders Beneficial,
       Household Financial, and Decision One, subsidiaries of Household International,
       recently purchased by HSBC Holdings;
   •   National City Mortgage and National City Bank are compared to subprime lender
       First Franklin Financial Corporation; and
   •   Washington Mutual, FA is compared to its subprime subsidiary Long Beach
       Mortgage;

Loan Pricing. Finally, some data are provided regarding loan prices for certain subprime
loans in California, in order to suggest the impact of disparities between prime and
subprime lending. Loan pricing data is not publicly unavailable, though Home Mortgage
Disclosure Act (HMDA) data will soon begin to reveal pricing data as a result of
regulatory changes made last year by the Federal Reserve Board. Loan pricing data is
available in individual borrower loan files, though this data is hard to retrieve and analyze
to any significant degree. Lenders and associations of lenders of course have large
databases containing loan pricing, but this information is often shielded from public
scrutiny.

The California Department of Corporations provides one of the few sources of public
loan pricing data, even though this data has limitations. Finance company lenders


                                                                                          28
required to obtain licenses under the state Consumer Finance Law must file annual
reports with the Department. Such data include the number of consumer loans made in
the state by the licensee, the number of consumer loans that are secured by real estate,
and the Annual Percentage Rate (APR) ranges of consumer loans made.

Limitations. This study is subject to the limitations of publicly available data,
specifically the Home Mortgage Disclosure Act (HMDA) data, state Department of
Corporations data, and the HUD Subprime Lender list, a list compiled by staff at the
Department of Housing and Urban Development, which identifies those lenders that are
primarily engaged in subprime or manufactured home lending. One difficulty is in
characterizing loans as prime or subprime. All reported loans from lenders not on HUD’s
subprime lender list are treated here as prime loans. This approach, while perhaps
unavoidable, underestimates the extent of subprime lending in the state.

For example, in California, Wells Fargo Home Mortgage (WFHM), Chase Manhattan,
and Indymac Bank are three of the largest lenders in the state, and they are considered
prime lenders. Yet each lender also originates a significant percentage of subprime loans.
Given the large volume of lending by these institutions, each could very well be one of
the largest prime AND subprime lenders in the state. Since the above lenders fail to
report their subprime lending data separately, the public is unable to know whether their
lending to borrowers of color is low cost prime lending or high cost subprime lending.
See appendix VI for a list of the top subprime lenders nationally. The list includes some
of the companies listed above, and includes six banks, and one would-be bank (H&R
Block/Option One applied last year to establish a federally chartered thrift).

Of course, subprime lenders listed on HUD’s Subprime Lender List may also originate
prime loans, but the relatively small volume of lending by subprime lenders and
anecdotal evidence of their small prime operations, suggests this problem may not
significantly impact this analysis.

HMDA data is further limited in that certain elements of conventional underwriting –
such as credit scores, loan to value ratios, and debt to income ratios – are not available.
While CRC and other community groups continue to call for HMDA reporting
requirements to be strengthened, the industry continues to fight adamantly against any
and all expansions of HMDA. CRC looks forward to future HMDA data filings, which
will include important loan pricing data, as well as additional race, gender, and income
data as lenders are now required to seek this data from telephone loan applicants.

Loan pricing data are limited by imperfect data reporting requirements. The California
Department of Corporations collects data from each of its finance company licensees
which demonstrate the number of consumer loans made in the state, the number that are
secured by real estate, the number of loans by loan size within certain categories (the
number of loans in amounts over $10,000, for example), and the Annual Percentage
Rates of loan within certain categories (APRs up to 15%, from 15% to 19.99%, etc., for
example). Though limited, this data contains more information about loan pricing than
existing federal reporting requirements.



                                                                                              29
Appendix I



                                              FRESNO
                        Outreach and Lending to African American Households
   Lender                           % Apps % Loans Benchmark         # Apps    # Loans        Score
   Bank of America                       1.4       1.1        8.4          5              3       0
   Bank of the West                     13.6      12.5        8.4          3              2       2
   California Bank & Trust                 0         0        8.4          0              0     n/a
   Chase Manhattan                      12.1         5        8.4          4              1       1
   Citibank                              3.3         0        8.4          2              0       0
   Countrywide Bank and Home Lns         3.4       3.4        8.4         35             28       0
   Indymac Bank, FSB                     2.7       2.1        8.4          2              1       0
   National City                         3.4         0        8.4          3              0       0
   Union Bank of California                0         0        8.4          0              0     n/a
   US Bank                              14.7         0        8.4          5              0       1
   Washington Mutual                       3       1.7        8.4         15              6       0
   Wells Fargo                           4.4       4.1        8.4         72             55       0
   World Savings                         2.4       1.9        8.4          8              5       0

                                             FRESNO
                             Outreach and Lending to Latino Households
   Lender                           % Apps % Loans Benchmark         # Apps    # Loans        Score
   Bank of America                      33.9      30.5       31.4        122          83          2
   Bank of the West                     13.6      18.8       31.4          3           3          0
   California Bank & Trust                 0         0       31.4          0           0        n/a
   Chase Manhattan                      18.2        15       31.4          6           3          0
   Citibank                             26.7      15.8       31.4         16           3          0
   Countrywide Bank and Home Lns        27.4      24.7       31.4        281         201          0
   Indymac Bank, FSB                      23      19.1       31.4         17           9          0
   National City                        18.4      17.5       31.4         16          10          0
   Union Bank of California               50      44.4       31.4          7           4          1
   US Bank                              29.4        20       31.4         10           2          0
   Washington Mutual                    24.5      22.6       31.4        124          82          0
   Wells Fargo                          26.2      24.9       31.4        431         332          0
   World Savings                        26.4      24.4       31.4         88          63          0




                                                                                    30
                                     LOS ANGELES
                   Outreach and Lending to African American Households
Lender                              % Apps % Loans Benchmark # Apps # Loans Score
Bank of America                         4.6       4.1        12.6      159     105     0
Bank of the West                        9.1       7.1        12.6        2       1     0
California Bank & Trust                36.4      33.3        12.6        4       1     1
Chase Manhattan                         8.4       7.5        12.6       84      47     0
Citibank                                5.1       3.4        12.6       24      10     0
Countrywide Bank and Home Lns           6.8       6.1        12.6      385     260     0
Indymac Bank, FSB                         4       4.1        12.6       82      61     0
National City                           4.5       3.8        12.6       58      37     0
Union Bank of California                1.8         1        12.6        7       3     0
US Bank                                 4.5       9.5        12.6        2       2     0
Washington Mutual                       4.1       3.2        12.6      230     127     0
Wells Fargo                             7.1       6.7        12.6      275     194     0
World Savings                             5       4.3        12.6      131      61     0

                                     LOS ANGELES
                        Outreach and Lending to Latino Households
Lender                              % Apps % Loans Benchmark        # Apps # Loans Score
Bank of America                        25.5      22.7          33      879     582     0
Bank of the West                       18.2      21.4          33        4       3     0
California Bank & Trust                18.2         0          33        2       0     0
Chase Manhattan                        21.9      19.5          33      218     122     0
Citibank                               19.8      11.3          33       94      33     0
Countrywide Bank and Home Lns          22.9      21.6          33     1301     927     0
Indymac Bank, FSB                      17.7      16.5          33      361     243     0
National City                          46.5      49.4          33      605     478     2
Union Bank of California                2.6       3.1          33       10       9     0
US Bank                                20.5       4.8          33        9       1     0
Washington Mutual                        22      21.1          33     1251     827     0
Wells Fargo                            29.5      28.3          33     1140     813     0
World Savings                          17.7      16.1          33      462     231     0




                                                                                     31
                                      OAKLAND
                    Outreach and Loans to African American Households
Lender                              % Apps % Loans Benchmark # Apps # Loans Score
Bank of America                          11      10          36.9      101      73      0
Bank of the West                          0        0         36.9        0       0    n/a
California Bank & Trust                   0        0         36.9        0       0    n/a
Chase Manhattan                        21.6      18          36.9       29      18      0
Citibank                               15.2     10.8         36.9       17       9      0
Countrywide Bank and Home Lns          17.1     12.9         36.9       39      20      0
Indymac Bank, FSB                      18.8     20.3         36.9       19      13      0
National City                          12.4     10.9         36.9       18      10      0
Union Bank of California                  0        0         36.9        0       0    n/a
US Bank                                27.8     33.3         36.9        5       3    n/a
Washington Mutual                      13.2     11.6         36.9       65      41      0
Wells Fargo                              21     18.7         36.9      113      75      0
World Savings                          26.8     22.6         36.9       95      55      0



                                      OAKLAND
                         Outreach and Loans to Latino Households
Lender                              % Apps % Loans Benchmark        # Apps # Loans Score
Bank of America                        23.1     22.9         13.7      213     167      2
Bank of the West                          0        0         13.7        0       0    n/a
California Bank & Trust                33.3        0         13.7        1       0    n/a
Chase Manhattan                        11.2        7         13.7       15       7      0
Citibank                               10.7      2.4         13.7       12       2      0
Countrywide Bank and Home Lns          12.3        9         13.7       28      14      0
Indymac Bank, FSB                      11.9     14.1         13.7       12       9      1
National City                            20     17.4         13.7       29      16      2
Union Bank of California               14.3        0         13.7        1       0    n/a
US Bank                                44.4     55.6         13.7        8       5      1
Washington Mutual                       8.3      6.5         13.7       41      23      0
Wells Fargo                              18     18.7         13.7       97      75      2
World Savings                          15.8     14.2         13.7       56      33      2




                                                                                     32
                                     SACRAMENTO
                   Outreach and Lending to African American Households
Lender                              % Apps % Loans Benchmark # Apps # Loans Score
Bank of America                        11.4      11.1        14.1      112        90     0
Bank of the West                         10      16.7        14.1        1         1   n/a
California Bank & Trust                16.7      33.3        14.1        1         1   n/a
Chase Manhattan                        10.6      10.4        14.1       21        14     0
Citibank                               13.6         0        14.1        8         0     1
Countrywide Bank and Home Lns           7.8         6        14.1       76        43     0
Indymac Bank, FSB                       8.4       7.4        14.1       13         7     0
National City                           4.2       4.5        14.1       32        27     0
Union Bank of California                  0         0        14.1        0         0     0
US Bank                                 7.1         4        14.1        7         2     0
Washington Mutual                       7.3       6.9        14.1       58        40     0
Wells Fargo                            10.3       9.9        14.1      232       165     0
World Savings                           7.7       5.4        14.1       44        20     0



                                     SACRAMENTO
                        Outreach and Lending to Latino Households
Lender                              % Apps % Loans Benchmark        # Apps   # Loans Score
Bank of America                        11.9      10.8        15.9      117        88     0
Bank of the West                          0         0        15.9        0         0   n/a
California Bank & Trust                  50      33.3        15.9        3         1   n/a
Chase Manhattan                        11.1       8.1        15.9       22        11     0
Citibank                               23.7         9        15.9       14         1     1
Countrywide Bank and Home Lns          14.5      14.1        15.9      142       101     0
Indymac Bank, FSB                      36.8      37.2        15.9       57        35     2
National City                          23.7        25        15.9      179       151     2
Union Bank of California                6.9       3.1        15.9        2         1     0
US Bank                                11.1        10        15.9       11         5     0
Washington Mutual                      12.1      12.5        15.9       96        73     0
Wells Fargo                            19.6      18.6        15.9      442       310     2
World Savings                          13.3      13.7        15.9       76        51     0




                                                                                       33
                                       SAN DIEGO
                     Outreach and Loans to African American Households
Lender                               % Apps % Loans Benchmark # Apps          # Loans Score
Bank of America                          1.4        1.3        7.3       23        18          0
Bank of the West                           0          0        7.3        0         0        n/a
California Bank & Trust                    0          0        7.3        0         0        n/a
Chase Manhattan                          3.8        3.6        7.3       20        14          0
Citibank                                 3.7        2.7        7.3        4         2          0
Countrywide Bank and Home Lns            1.5        1.5        7.3       41        35          0
Indymac Bank, FSB                        2.6        0.5        7.3        8         1          0
National City                            1.4        1.2        7.3       14         9          0
Union Bank of California                 3.8        3.5        7.3       11         8          0
US Bank                                    0          0        7.3        0         0          0
Washington Mutual                        1.7        1.3        7.3       55        29          0
Wells Fargo                              3.7        3.5        7.3       87        62          0
World Savings                            1.8        1.5        7.3       25        13          0



                                       SAN DIEGO
                          Outreach and Loans to Latino Households
Lender                               % Apps % Loans Benchmark        # Apps   # Loans Score
Bank of America                            9        8.7       17.4      153       118          0
Bank of the West                          20          0       17.4        1         0        n/a
California Bank & Trust                 46.9       29.4       17.4       15         5          2
Chase Manhattan                         14.9       13.5       17.4       78        52          0
Citibank                                 4.6        1.4       17.4        5         1          0
Countrywide Bank and Home Lns           15.2       15.1       17.4      411       340          0
Indymac Bank, FSB                       12.8       12.2       17.4       40        25          0
National City                            9.2        8.8       17.4       93        67          0
Union Bank of California                12.1       11.8       17.4       35        27          0
US Bank                                 12.7        8.3       17.4        8         3          0
Washington Mutual                       12.2       11.2       17.4      401       249          0
Wells Fargo                             12.7         12       17.4      301       210          0
World Savings                           19.3         19       17.4      264       163          2




                                                                                        34
Appendix II – 13 Bank and Affiliated Home Purchase Lenders

   •   Bank of America, N.A.
   •   Bank of the West
   •   California Bank & Trust
   •   Chase Manhattan Mortgage Corp.
   •   Citibank, F.S.B./Citibank (West)/Citimortgage Inc.
   •   Countrywide Home Loans/Treasury Bank
   •   Indymac Bank, FSB
   •   National City Bank/National City Mortgage
   •   Union Bank of California, N.A.
   •   U.S. Bank North Dakota/U.S. Bank N.A.
   •   Washington Mutual Bank, FA
   •   Wells Fargo Home Mortgage
   •   World Savings Bank



Appendix III – 13 Subprime Lenders

   •   Accredited Home Lenders, Inc.
   •   Aegis Mortgage Corporation
   •   Ameriquest Mortgage Company
   •   Beneficial Corporation/Household Finance Corp
   •   BNC Mortgage, Inc.
   •   First Franklin Financial Corp.
   •   Fremont Investment and Loan
   •   Full Spectrum Lending, Inc.
   •   Greenpoint Mortgage Funding, I
   •   Long Beach Mortgage Co.
   •   New Century Mortgage Corp.
   •   Option One Mortgage Corp.
   •   Citicorp Trust Bank, FSB




                                                             35
Appendix IV – 6 Prime Lending Affiliates

   •   Citibank: Citibank, F.S.B./Citibank (West)/Citimortgage
   •   Countrywide: Countrywide Home Loans/Treasury Bank
   •   H&R Block: H&R Block Mortgage Corp.
   •   HSBC: HSBC Bank/HSBC Mortgage Corporation
   •   National City: National City Bank/National City Mortgage Company
   •   Washington Mutual: Washington Mutual Bank, FA




Appendix V – 6 Subprime Affiliates

   •   Citibank: Citifinancial Mortgage Company/Citicorp Trust Bank, FSB
   •   Countrywide: Full Spectrum Lending, Inc.
   •   H&R Block: Option One Mortgage Corp.
   •   HSBC: Beneficial Corporation/Decision One Mortgage Company/Household
       Finance Corp.
   •   National City: First Franklin Financial Corp.
   •   Washington Mutual: Long Beach Mortgage Co.




                                                                              36
Appendix VI – Top Subprime Lenders Nationally

Source: National Mortgage News Daily Briefing- Weekend Edition, October 10-15, 2003

Rank         Lender                             Retail Volume Q2 03
                                                (Millions)
1.           Citifinancial                      $3,648
2.           Ameriquest Mortgage Corp.          $2,900
3.           Household Financial Services       $2,900
4.           Wells Fargo Home Mortgage          $2,707
5.           Countrywide Financial Corp.        $1,385
6.           Chase Home Finance                 $852
7.           New Century Financial Corp.        $700
8.           Aegis Mortgage Corp.               $700
9.           Centex Home Equity Company         $416
10.          CIT Group Consumer Finance         $415
11.          Aames Financial Corporation        $400
12.          H&R Block Mortgage                 $302
13.          Equity One, Inc.                   $260
14.          Saxon Mortgage                     $224
15.          Accredited Home Lenders            $216
16.          E-Loan                             $198
17.          IndyMac Bancorp, Inc.              $155
18.          Delta Funding Corp.                $154
19.          First Franklin Financial           $153
20.          Finance America Corporation        $142




                                                                                 37
Appendix VII
                        California Reinvestment Committee

FAIR LENDING PRINCIPLES FOR BANKS, THRIFTS, AND SUBPRIME LENDERS

1. Stop targeting minorities, low-income, and the elderly for sub-prime lending.
•      Provide separate HMDA data on subprime lending to the public, whether
       subprime lending occurs through bank, thrift, subprime subsidiary or affiliate.
•      Adapt marketing and retail location of parent bank and subsidiaries/affiliates to
       balance targeting to minorities.
•      Support credit and mortgage counseling programs.
•      Conduct periodic review of applications taken, originations, and denials by
       neighborhood and borrower race and income to ensure credit is being made
       available in a balanced fashion.

2. Offer borrowers the best product for which they qualify.
•      Agree to offer a full-spectrum of loan products, including A-paper loans.
•      Develop a referral system to match the consumer to the most appropriate product.
•      Compensate loan personnel and management on a basis that furthers the above
       goals.
•      Ensure adequate representation of wholesale staff and retail facilities to make
       prime credit available to underserved communities.
•      Establish a rescue fund to compensate victims of predatory lending.

3. Stop onerous prepayment penalties:
•     Offer every borrower the option of a loan without prepayment penalty.
      Prepayment penalties provisions must result in a bona fide benefit to the
      borrower, such as a truly lower interest rate.
•     Limit prepayment penalties to the first 3 years of the loan
•     Prohibit prepayment penalties after a change in the initial interest rate of the loan
•     Charge no more in prepayment penalties than the following: 3% of the loan
      amount if paid within the first year of the loan; 2% of the loan amount within the
      first two years of the loan; and 1% of the loan amount within the first three years
      of the loan.
•     Lenders refinancing a note they hold should not assess a prepayment penalty.

4. End flipping.
•      Stop refinancing loans when not in the “best interest of the borrower,”
       considering lower monthly payments, lower blended interest rates, assistance in
       avoiding foreclosure, and cash out to the borrower.
•      Do not encourage borrowers to refinance unsecured debt into the new loan as a
       means of increasing the loan size and related points, fees, and commissions.
•      Develop a second mortgage product for owners with special low or no cost
       mortgages that wish to access the wealth in their homes without losing the benefit
       of their first mortgage.


                                                                                        38
5. End the sale of single premium credit insurance products as part of the home loan.
•      Offer insurance product only if payments are made monthly and if sale of product
       occurs at least one week after a home loan closing

6. End mandatory arbitration provisions.

7. Ensure borrowers are able to repay the loan.
•     Underwriting should screen out borrower with 50% or greater debt to income
      ratios, unless lender can document why lender reasonably believes borrower will
      be in a better position to afford the loan in the future.

8. End excessive points and fees
•      Points and fees should not exceed 3% of the loan amount

9. Stop predatory practices of brokers
•      Commit to testing and loan reviews of brokers that consider customer complaints.
•      Compensate loan personnel and management on a basis that does not reward
       predatory practices and places penalties on those that do.
•      Place a cap on fees to brokers.
•      Require fair lending training of all brokers.
•      Mandate a broker code of conduct agreement.
•      End yield spread premium payments or other compensation that rewards brokers
       for steering borrowers to higher cost products and larger loans.

10. Agree not to purchase or invest in predatory loans
•      Develop due diligence to ensure no predatory loans are purchased or invested in
       as part of a mortgage backed security. Ensure all affiliated institutions, including
       securities firms, are not underwriting, securitizing, or otherwise facilitating the
       financing of lending that violates these principles.
•      Make borrowers whole when presented with evidence that these principles have
       been violated.




                         California Reinvestment Committee
               474 Valencia St., Ste. 110, San Francisco, California 94103
                       (415) 864-3980 **** fax (415) 864-3981
                             web site: www.calreinvest.org




                                                                                        39

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:3
posted:7/21/2012
language:
pages:39