TARP Recipients Sold Higher Cost Mortgages to Minorities, Says CAP
Blacks and Hispanics were more likely to receive higher priced mortgages in 2006, compared to white borrowers, at many banks that now participate in the Troubled Asset Relief Program (TARP), according to a report released by the Center for American Progress (CAP). CAP is a think tank that focuses on US leadership, energy, economic growth and health care initiatives. It is headed by former President Bill Clinton's chief of staff, John Podesta. CAP said the report’s data came from Home Mortgage Disclosure Act (HMDA) disclosures that provide loan-level data, including the race of borrowers. HMDA also defines a “higher-priced” mortgage as one when the difference between the loan’s annual percentage rate and a Treasury security of comparable maturity is above three percentage points for a first-lien mortgage. The report said that in 2006, 17.8% of white borrowers were sold higher priced mortgages, compared to 41.5% of black borrowers, 30.9% of Hispanic borrowers and 11.5% of Asian borrowers. Combined, these loans accounted for 21.8% of all mortgages sold in 2006. CAP's report also breaks out high-income borrowers, those whose household income is more than twice their area’s median income. For that segment 10.5% of white borrowers, 32.1% of black, 29.1% of Hispanic and 11.5% of Asian were sold higher priced mortgages in 2006. The report acknowledges the HMDA data is not a complete picture of the factors that led to the results. In breaking down its data on a bank-level, the center combined Countrywide with its purchasing firm Bank of America (BAC) and Wachovia with Wells Fargo (WFC), as well as Washington Mutual and its parent, JP Morgan Chase (JPM). “It allows us to raise the questions, but not to fully answer it, as to whether banks were explicitly engaging in violations of fair lending practices, or whether there are simply other legitimate underwriting reasons to explain why the gaps persist between African Americans and Hispanics and whites,” said Andrew Jakabovics, CAP’s associate director for housing and economics co-author of the report, in a media conference call. A JP Morgan Chase spokesperson said the bank evaluates a wide range of financial qualifications and said it treats “all borrowers fairly.” CAP called for specific action in light of its research. Jakabovics said the report further makes the case for a separate government oversight agency for consumer protection, the proposed Consumer Finance Protection Agency. “At the time these loans were made in 2006, the Federal Reserve Bank had oversight authority over consumer financial protection and there’s been trend of basically paying good lip service but not actually protecting consumers at the end of the day,” Jakabovics said. “That’s in part because of the inherent conflict that exists between consumer financial protection and systemic risk obligations,” he added. “Systemic risk will always take precedent over fair lending that it’s important to provide consumers with an alternative vehicle for ensuring their protection.” The data in the research is from 2006, but now that banks have received taxpayer dollars to help in the economic recovery, the TARP special investigator should be charged with ensuring lenders are following all fair lending regulations, the report said. The report calls for institutions that have received TARP money to not be allowed to make future repayments, and continue to accrue interest on the funds, until the banks’ lending practices are reviewed to ensure they are operating under fair lending practices. Representatives from Wells Fargo and Bank of America could not provide comments before this story was published. Write to Austin Kilgore.