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Minorities affected most by subprime mess
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With a Wall Street bailout bill looming and more and more homeowners facing foreclosure, it’s becoming more apparent that Minorities are affected most by the subprime mess. WOSU reports, experts gathered in Columbus to discuss the crisis and how the bailout bill could affect minority communities.
Aside from finding a home they love, a homebuyer’s goal is to get the best interest rate they can. As the foreclosure crisis has shown, many buyers did not get a good rate. And even if they did, the rate did not last long before it ballooned. And many of the people with these high rate mortgages are minorities.
The Association of Community Organizations for Reform Now, or ACORN, says in 2006 almost 58 percent of high-rate loans in Columbus were held by African-Americans. 33 percent of Latinos had a high-cost loan compared to 22 percent of whites.
“There is no data available that justify those high disparities in lending. None,” National Community Reinvestment Coalition CEO Jim Carr said.
He said minorities were specifically targeted for high-rate loans.
“People try to make the argument well their credit histories and credit scores are different. It’s true that minorities do on average have more credit challenges, and it’s expected given a history of discrimination and marginalization in society,” he said.
Subprime lending has been going on since the 1990′s. Some blame part of the current mortgage crisis on changes in federal law which encouraged banks to make home loans to low income buyers. But Carr disagreed. He said promoting home ownership is not to blame, predatory lending is.
“The loans themselves were not sustainable and they had to be refinanced within a couple of years or else they literally would become unaffordable. The most popular loans known as 228s and 327s are known within the industry as exploding mortgages. That gives you an idea of just how unfair and deceptive these practices were,” he said.
john powell directs the Kirwan Institute for the Study of Race and Ethnicity at Ohio State. powell said minority communities are at a disadvantage because their neighborhoods often feature only high interest payday lending stores rather than traditional banks where they can shop around for the best loans.
“And a lot of people think the mortgage broker is own their side. You advised me. You told me this was the best loan. I believed you. Why wouldn’t I believe you? You’re a good guy or a good woman. And there’s a lot of fraud. So it’s literally pushing people toward a product,” powell said.
Carr said the $700 billion Wall Street bail out bill needs to prohibit the market practices that caused the economy to collapse. And he added the package could create greater problems for people in foreclosure.
“For several months now the Federal Government has been encouraging servicers to work with consumers for loan modifications. Now with the ability and the potential to sell those non-performing assets or poorly-performing assets to the Federal Government the incentive is even less for them to actually modify loans. So we could see even fewer modifications than the minimal number we are seeing now,” Carr said.