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Part 2 Asset Building

8. Stubborn and Persistent Lending Disparities

Joshua Silver

Community development often focuses on affordable housing and economic development projects as key for community wealth building. A parallel requirement is that family and community wealth be protected against predatory lenders. Predatory lenders steal equity through high fees and abusive terms and conditions.

Responsible high-cost lending serves legitimate credit needs. High-cost loans compensate lenders for the added risk of lending to borrowers with credit imperfections. However, wide differences in lending by race, even when accounting for income levels, suggest that more minorities are receiving high-cost loans than is justified based on creditworthiness. In fact, National Community Reinvestment Coalition (NCRC) observes that racial differences in lending increase as income levels increase. In other words, middle- and upper-income (MUI) minorities are more likely relative to their MUI white counterparts to receive high-cost loans than low- and moderate-income (LMI) minorities are relative to LMI whites. When minorities receive a disproportionate amount of high-cost loans, they lose substantial amounts of equity through higher payments to their lenders.

Since racial disparities have been stubborn and persistent over several years, this chapter also describes a number of programmatic and policy reforms. Community groups and financial institutions should engage in more partnerships to devise counseling programs and lending products that are fairly priced and affordable for minorities and working-class Americans. Congress must pass a comprehensive antipredatory law that prohibits steering or price discrimination and that outlaws a range of equity-stripping and abusive practices.

 
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