Stealing Black Homes or Giving Them Away?

SF Bayview, Ron Walters, Posted: Feb 18, 2003

I’m sure that you know black people who have gone to much trouble to put a burglar alarm on their house to keep thieves from breaking in and stealing their possessions. But did it occur to you that these same people would walk into a bank or finance company and give away their home to someone wearing a white collar and fancy suit? This happens every day when unsuspecting black consumers obtain loans that have hidden advantages for the lenders who would use confusing and misleading lending practices that are hard to understand.

These tactics are called “predatory lending,” when banks, mortgage lenders or finance companies charge excessive loan fees, high interest rates, large “balloon” payments, costly and often unnecessary insurance and pressure folks to refinance their homes unnecessarily.

Blacks, and especially the Black elderly who have more equity in their homes, are often targets of such practices. Falling prey to such practices is a shame because blacks have made progress in home ownership over the past half-dozen years. Home ownership among Blacks has increased from 42 percent in 1994 to 47 percent at the time of the 2000 census. White home ownership also increased, but not as much, going from 64 percent to 67 percent in the same period. And since Blacks have 60 percent of their wealth tied up in their homes on average, the silent theft of the equity in their home defeats the prospect of wealth-building.

Currently, there is a wave of discovery that these practices of predatory lending are draining substantial amounts of money from Black homes from one end of the country to another. In fact, data from North Carolina suggests that in that state alone, $1 billion will be stripped from homeowners over the next several years.

A national organization, ACORN (Association of Community Organizations for Reform Now) has filed suit in California against Household Finance Corp. and Beneficial California for such practices. In their suit, they described one family’s downhill slide. A $5,000 “live” check just showed up in the mail, which the family spent. The family then borrowed to pay it off with a loan at 12.5 percent. That was not enough, so they refinanced again using a so-called “revolving” loan with a rate of 23.9 percent-and they were required to make a balloon payment after five years to pay off the remaining balance.

Such practices are common as refinancing of loans has become a popular way to raise quickly needed cash. In fact, the market has doubled since 1990 and the number of loans regarded as “subprime” have grown more than 500 percent since 1994. The irony is that many banks and mortgage companies were pressured to begin making loans to people of color living in low-income neighborhoods with less standard credit histories. Now many of them are being exploited by these institutions.

Much of the exploitation of Black consumers occurs because they are unaware of such practices. This suggests that Black consumers must give as much time to studying how to obtain a loan as they do to the sports page. Or at the very least, they need to invest some money in hiring a Black professional in this field who may help them save thousands of dollars. My wife and I recently purchased a home and used the services of a bright, 30-something young Black lawyer who knew his stuff-and who saved us some grief in the bargain.

Oh, I know, many of us don’t trust Black professionals. Some of us say, “They are just out to get our money.” So, we will do the smart thing and just give it to the White man.

Our churches, social clubs and other community networks should be logical places to link to information on protecting the most valued asset that we own and avoid the pitfalls of making a poor loan. They should also be the places where we can link with caring Black professionals who could educate us on aspects of wealth building. Some of our civil rights organizations have even had such programs in the past.

While we rightly beat up on the lending institutions, ultimately we can do something about this by defending ourselves more effectively.

Ronald Walters is Distinguished Leadership Scholar, Director of the African American Leadership Institute and Professor of Government and Politics at the University of Maryland. His latest book is “African American Leadership.”

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