UNH report says predatory lending worse in rural areas

Predatory mortgage lending is prevalent in rural areas, according to a new policy brief from the Carsey Institute at the University of New Hampshire.

The report, “Subprime and Predatory Lending in Rural America: Mortgage Lending Practices that Can Trap Low-Income Rural People,” also finds that rural minorities are more likely than rural whites to take out higher-cost mortgage loans.

The subprime mortgage market is where people who may not qualify for conventional credit borrow.

Subprime lending plays an important role in access to credit and is booming across the nation, but at the same time, abusive, predatory practices have been flourishing in a subset of this market.

“Lacking access to many lending options, rural residents are susceptible to a range of predatory financial institutions and products that charge excessive fees and diminish their ability to save and build wealth,” said Cynthia “Mil” Duncan, director of the Carsey Institute. “Predatory lending hurts not only individual borrowers, but it can have significant impact on rural children, families and communities through increased foreclosures and vacant housing units.”

Analyzing the most recent Home Mortgage Disclosure Act (HMDA) data, the report finds that 17.4 percent of mortgage loan originations in rural areas were classified as High APR loans, or HALs — defined as loans with interest rates at least three percentage points higher than that of comparable U.S. Treasury securities. This is slightly higher than the national rate of 15 percent. Closer analysis of these data indicates that HALs are concentrated in rural areas with chronic poverty and, often, a high percentage of minorities.

“Predatory lending has been called red-lining in reverse,” says report co-author Theresa Singleton, director of research and information at the Housing Assistance Council of Washington, D.C. “Just as some poor and minority communities were once denied access to credit, those same communities are being flooded with loan products that often strip equity and diminish wealth.”

A case study of predatory lending in Maine, which accompanies the report, shows that as many as many as 15 percent of borrowers qualified for cheaper loans than they actually got.

“A home is the most valuable asset for most low-income rural residents, as it is for most Americans,” says co-author Carla Dickstein, senior vice president for research and policy development at Coastal Enterprises, Inc., of Maine. “To protect the benefits of homeownership, national and state officials should adopt and enforce policies that better regulate subprime lending terms, monitor lending and real estate practices, and educate and protect borrowers.”

The policy brief can be downloaded at carseyinstitute.unh.edu.lori.wright@unh.edu.

Meanwhile the New Hampshire Housing Finance Authority is getting federal money to help fund its “Don’t Borrow Trouble” program, designed to fight predatory lenders and to educate homebuyers about scams that have victimized others.

The campaign will feature useful brochures, a Web site – dontbuytrouble.org — a toll-free hotline and media ads to warn people to be careful when they borrow against their homes. The toll-free number is 866-623-1302.

“Low- and moderate-income families, minorities and the elderly are often targets for unscrupulous lending schemes,” said Claira Monier, the agency’s executive director.

She said it’s estimated that predatory ending costs New Hampshire citizens $40 million a year.

Citizens Bank New Hampshire, Freddie Mac and the U.S. Department of Housing and Urban Development are supporting the program.