Racial predatory loans fueled U.S. housing crisis

http://www.msnbc.msn.com/id/39499165/ns/business-real_estate/

By Nick Carey
Reuters
updated 10/4/2010 9:36:57 AM ET

CHICAGO — Predatory lending aimed at racially segregated minority neighborhoods led to mass foreclosures that fueled the U.S. housing crisis, according to a new study published in the American Sociological Review.

Predatory lending typically refers to loans that carry unreasonable fees, interest rates and payment requirements.

Poorer minority areas became a focus of these practices in the 1990s with the growth of mortgage-backed securities, which enabled lenders to pool low- and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.

1.
More must-see stories
1.
Image: mom multi-tasking
Getty Images stock
Scam on line 1

ConsumerMan: 'Cramming' phone scam back on the rise, now availabe for your cell phone! Full story
2. Life Inc.: Groupon is paying for sex, sort of
3. The 'missing' warily return to the job hunt
4. Your career: Sick-leave conundrum

The financial institutions likely to be found in minority areas tended to be predatory — pawn shops, payday lenders and check cashing services that "charge high fees and usurious rates of interest," they said in the study.

"By definition, segregation creates minority dominant neighborhoods, which, given the legacy of redlining and institutional discrimination, continue to be underserved by mainstream financial institutions," the study says.

Redlining is the practice of denying or increasing the cost of services, such as banking and insurance, to residents in specific areas, often based on race.

----- (skipping)

Even African-Americans with similar credit profiles and down-payment ratios to white borrowers were more likely to receive subprime loans, according to the study.

----- (skipping)

..