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Subprime Disparities Worsened in 2007 at B of A, Chase, WaMu, Citigroup, Countrywide, Group Says

NEW YORK, April 7 -- Not only investors but also consumers, particularly those on the bottom, have been harmed by lenders' subprime frenzy, a new study has found. Using 2007 Home Mortgage Disclosure Act data that was required to be released on March 31, the Bronx-based watchdog group Fair Finance Watch has identified worsening disparities by race and ethnicity in the higher-cost lending of the nation's largest banks, and it largest non-bank mortgage company, Countrywide Financial.

    The findings, the group says, call into question what it calls the use of JPMorgan Chase to bail-out Bear Stearns, private equity group TPG's reported propping-up of Washington Mutual, and Bank of America's proposal to acquire Countrywide Financial, on which the Federal Reserve recently granted requests for public hearings, from FFW and others.

            The HMDA data for 2007, which is sure to be used at the hearings, is the fourth year in which the data distinguishes which loans are over the federally-defined "rate spread," of three percent over the yield on Treasury securities of comparable duration on first lien loans, five percent on subordinate liens.  

            According to the Fair Finance Watch analysis, the first released by anyone, JPMorgan Chase in 2007 placed African Americans in higher-cost loans above this rate spread 2.4 times more often than whites, and Hispanics 1.6 times more frequently than whites. Perhaps most surprisingly, given what was known about subprime loans, at least by the second half of 2007, and Chase's claim to have largely avoided the business, the percentage of Chase's loans which were over the rate spread increased from 19.28% in 2006 to 20.96% in 2007.

            Also of note is that in the New York City area, its headquarters, Chase placed African Americans in higher-cost loans above the rate spread 2.9 times more frequently than whites, and Hispanics 2.5 times more frequently than whites. This is more disparate than other lenders it reviewed in New York.

            Fair Finance Watch has previously focused on New Orleans, particularly in the aftermath of Hurricane Katrina. In 2007 in the New Orleans area, according to its follow-up analysis, Chase placed African Americans in higher-cost loans above the rate spread 2.25 times more frequently than whites. Chase outright denied over 50% of mortgage applications from African Americans. On this basis, Fair Finance Watch is asking for the Federal Reserve to review the bail-out of Bear Stearns by JPMorgan Chase, a called FFW began as soon as the bail-out was announced, with no public input, on March 16.

            While the Federal Reserve has still not set up any public comment and review process on the JPM Chase - Bear Stearns bail-out, it has now scheduled public hearings on Bank of America's Countrywide application, in Chicago on April 22 and in Los Angeles on April 28 and 29. Fair Finance Watch had requested the public hearings, and in the run-up is submitting to the Federal Reserve data showing that Countrywide in the Los Angeles MSA in 2007 confined 18.91% of its African American borrowers to higher cost loans over the rate spread. Countrywide in the Chicago MSA in 2007 placed African Americans in higher-cost loans 1.93 times more frequently than whites, while placing Hispanics in higher-cost loans 1.35 times more frequently than whites.

            Across the nation -- or countrywide -- in 2007, Bank of America placed African Americans in higher-cost loans 1.88 times more frequently than whites, and denied the applications of Hispanics 1.62 times more frequently than whites. Meanwhile B of A's target Countrywide Financial place African Americans in higher-cost loans 1.95 times more frequently than whites, and denied the applications of Hispanics 1.53 times more frequently than whites. Fair Finance Watch in calling for the Federal Reserve public hearings asked that the merger not be approved, saying also that "the golden parachutes [for Countrywide executives such as Angelo Mozilo and others] are just a form of impunity."

Subprime rogues' gallery, top left Bears' Cayne, Mozilo top right: the color of money

            While Countrywide's excess under Mozilo led to its proposal to sell-out to Bank of America, other lenders like Washington Mutual and Citigroup try to survive by selling big stakes to hedge and sovereign wealth funds. It's being reported that TPG may infuse $5 billion in Washington Mutual. Fair Finance Watch shows that in 2007, Washington Mutual, the nation's largest savings bank, placed African Americans in higher-cost loans above this rate spread 2.05 times more frequently than whites. Fully 54,914 of WaMu's 261,476 mortgages in 2007, or 21%, were high cost loans over the rate spread. 

            At Citigroup, a long-time focus of Fair Finance Watch, in 2007 African Americans were place in higher-cost loans above the rate spread 2.33 times more frequently than whites. Fully 109,511 of Citigroup's 448,542 mortgages in 2007, or 24.41%, were high cost loans over the rate spread.

            In its headquarters, the New York City area, Citigroup was even more disparate, placing African Americans in higher-cost loans above the rate spread 2.61 times more frequently than whites. Citigroup's ratio between Hispanics and whites was 1.90.

            Citigroup was most disparate in home purchase loans, the data show, placing African Americans in higher-cost home purchase loans above the rate spread 3.41 times more frequently than whites. Citigroup's ratio between Hispanics and whites was 1.76. Citigroup has acquired Argent, an affiliate of Ameriquest which, like Citigroup, has settled governmental charges of predatory lending, FFW notes, while questioning how the 2007 data of defunct lenders like Ameriquest, New Century, American Home Mortgage and others is being reported.  The regulators have a duty to make sure those loans are reported, particularly by those still buying predatory lenders, it says, such as Citigroup, HSBC, Merrill Lynch and Deutsche Bank.

            Royal Bank of Scotland, one of the largest banks in the world, through its U.S. subsidiaries in 2007 placed African Americans in higher-cost loans above the rate spread 1.76 times more frequently than whites. RBS denied over 66% of mortgage applications from African Americans, and over 62% of applications from Hispanics.

            At Wachovia, the nation's fourth largest bank, Hispanics in 2007 were placed in high cost loans 1.71 times more frequently than whites.

            National City, often rumored to be up for sale after unloading its subprime unit First Franklin to Merrill Lynch, in 2007 placed African Americans in higher-cost loans above the rate spread 1.77 times more frequently than whites. National City's disparity to Hispanics was 1.73. Fully 25,012 of National City's 246,138 mortgages in 2007, or 10.16%, were high cost loans over the rate spread. 

            Keycorp, based in foreclosure-ridden Cleveland like National City, and also rumored to be up for sale, in 2007 placed African Americans in higher-cost loans above the rate spread fully 2.2 times more frequently than whites.

            Suntrust in 2007 placed African Americans in higher-cost loans 2.51 times more frequently than whites, and denied the applications of African Americans 2.34 times more frequently than whites. Fully 15,435 of Suntrust's 2007 loans were high cost loans over the rate spread.

            U.S. Bancorp continued to make super high-cost loans subject to the Home Ownership and Equity Protection Act (HOEPA) -- that is, at least eight percent over comparable Treasury securities.

            Regions Financial, FFW says, provided its data at the deadline but only in paper format, on over 2000 pages, so that it could not yet be computer-analyzed. Lehman Brothers provided only a PDF file of over 6000 pages, to avoid any analysis of disparities.

            Where the rubber may or may not meet the road, Fair Finance Watch says, will be in how the Federal Reserve and other agencies act on specific disparities at specific lenders, including as these are formally raised to them in timely comments on merger applications, such as that of Bank of America to acquire Countrywide, and the needed review of JPM Chase - Bear Stearns -- and prospectively TPG - Washington Mutual. Watch this space.

Footnote: TPG's chief David Bonderman was, in fact, a WaMu board member in 2001, and while WaMu was acquiring Dime Bancorp in New York, FFW made a Freedom of Information Act request, that WaMu opposed, for the list of companies owned or controlled by Bonderman, which ran to 38 pages with ten companies listed on each page...

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