An analysis of recent reports required by the Home Mortgage Disclosure Act reveals that on a list of the top 20 lenders ranked according to the value of their loans to minorities, the largest sub-prime/home equity lender ranked only 14^th. Associates Home Equity Service, based in Coppell, Texas, was the sub-prime list leader; it made $ 2.08 billion in loans to minorities In the year 2000. (1)

The ranking was done by Mortgagestats.com, Washington D.C., an affiliate of National Mortgage News.

Leader in overall minority lending was Countrywide Home Loans with $10 billion, followed by Bank of America with $7.8 billion and Chase Manhattan Mortgage Corp. with $7.4 billion.

These big-picture statistics, however, don't tell the whole story. Lending to specific minority groups doesn't necessarily follow the wider trend. For example, Home Mortgage Disclosure Act (HMDA) data used in the Mortgagestats.com rankings show that Associates Financial Services and its affiliate, Home Equity Services, are the No. 1 and No. 2 lenders to American Indians. The two loaned $433.8 million and $320.6 million to this group, respectively. In lending to African-Americans, Associates Home Equity Services was ranked fifth ($1.15 billion).

Community groups concerned with fair lending to minorities also say that HMDA data, while an indicator of overall trends in minority lending, do not flag out individual lenders who focus on sub-prime loans to minorities.

Representatives for the Association of Community Organizations for Reform Now told the National Mortgage News that although the top HMDA lenders to minorities may not be primarily sub-prime lenders, "… they all have sub-prime branches and you cannot tell what goes to whom unless you go deeper into that data."

Community groups, regulators and vote-wise politicians say that sub-prime financing can lead to abusively higher rates. And consumer advocates quote studies that show sub-prime/home equity loans do go mostly to minority borrowers. Ergo, minorities tend to pay higher rates.

Sub-prime/home equity loans are generally made at higher rates because the borrowers have poor credit histories, want to take out a second lien, or want to raise their proceeds from the loan in relation to the value of their equity. Lenders say that the risks justify the higher rates. They also point out that without sub-prime opportunities many borrowers wouldn't have any financing available to them at all.

Countrywide—the biggest lender to both Hispanic borrowers and African-American borrowers—was the eighth largest sub-prime lender in the country during the third quarter of 2001.

Chase, the second largest lender to Hispanics and African Americans, ranked 10^th in the sub-prime market in the same period.(3)

Although it did not appear in 2001's third-quarter sub-prime rankings, in 2000, Bank of America was the second largest lender to minorities and the third largest sub-prime lender. Past articles in National Mortgage News have reported that Bank of America has been moving away from the sub-prime market, however.

As for Countrywide, Mary Duran, senior vice president and director of Countrywide’s "Fair Lending House America," said that the company is still active in the sub-prime market, but most of these loans are made to non-minorities. She said the company’s goal is to lend $100 billion to minorities by 2005 without using sub-prime products. Fannie Mae adjustable-rate mortgages have helped Countrywide service "A-minus" credit quality borrowers without using sub-prime loans.

"Countrywide has a long commitment to reach out and make the dream of homeownership come true, with a focus on minorities and low-income borrowers," Ms. Duran said. "But the overall (origination volume) from Countrywide’s sub-prime affiliate is a small amount compared to the total volume of loans to minority and low-income borrowers and communities."

(1) An affiliate of Associates Home Equity Service, Associates Financial Services, did about $1.3 billion in loans to minorities. Both are now units of Citigroup.

(3) Chase and the Wall Street firm J.P. Morgan have merged.

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[This article includes material reported by Amilda Dymi in National Mortgage News, March 11, 2002]