Mortgage-rule changes worry some organizations

Proposed regulatory changes designed to reduce the threat of another mortgage meltdown would make buying a home cost-prohibitive for many financially responsible minority and low-income residents, representatives of the country's largest civil-rights organizations said Wednesday.

In a telephone news conference, leaders of the groups National Council of La Raza, the National Urban League, NAACP and National Coalition for Asian Pacific American Community Development took issue with one particular component of the nearly 400-page proposal by federal regulators to create what they call "qualified residential mortgages."

Under the proposed rules, authorized by last year's Dodd-Frank Wall Street Reform and Consumer Protection Act, banks issuing mortgages for subsequent bundling and sale to the securities market must either require a 20 percent down payment or retain 5 percent of each loan's value on their books.

The proposed rules would not apply to loans backed by Fannie Mae, Freddie Mac or the Federal Housing Administration, which comprise 90 percent of all mortgages issued today.

Speakers at Wednesday's news conference said a required down payment of 20 percent would be particularly harmful to members of ethnic minorities, because they tend to earn less and typically would have the greatest difficulty coming up with 20 percent of the home's purchase price in cash.

The proposed rule also would have a chilling effect on the housing-market recovery by severely limiting the purchase power of minority groups, currently the fastest-growing segment of the housing market.

Regulators and other supporters of the 20 percent requirement say it would greatly reduce the risk of a second foreclosure crisis by requiring both lender and borrower to have a sizable stake in the loan's full repayment.

But members of the civil-rights groups said they were concerned about predictions that lenders would charge considerably higher interest rates to those mortgage borrowers unable to put 20 percent down.

Some analysts predict lenders could tack as much as 3 percent onto the interest rate for borrowers with pristine credit who lack the 20 percent down payment.

"We're concerned about any proposal that would make mortgages more expensive and difficult to obtain," said Cy Richardson, vice president of housing and community development for the National Urban League.

Graciela Aponte, senior legislative analyst for La Raza's Wealth-Building Policy Project, said mortgage lenders have a history of exploiting minority homebuyers, even those with ample proof of creditworthiness.

She offered a number of statistics supporting that claim, all based on studies by the nonpartisan Center for Responsible Lending, based in Durham, N.C.

- Latino and African-American homebuyers were more than twice as likely as White homebuyers to receive the kinds of mortgage most at risk of default.

- Even after controlling for income, credit score, loan-to-value ratio and presence of a co-signer on the loan, members of ethnic minorities made up a disproportionately large percentage of the subprime market.

- An estimated 8 percent of African-American and Latino homeowners have lost their homes to foreclosure, compared with 4.5 percent of White homeowners.

Aponte noted that all Arizonans face a higher risk of home foreclosure than residents of most other states, and that Arizona's housing market had been slow to recover even without the added restrictions on buyers.

by J. Craig Anderson The Arizona Republic Jun. 9, 2011 12:00 AM



Mortgage-rule changes worry some organizations