Tuesday, March 4, 2008

Women's Credit Profiling Called Costly, Ignored

Women's Credit Profiling Called Costly, Ignored

By Allison Stevens

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Profiling women with good credit histories as subprime borrowers has so far attracted less notice than other forms of lending discrimination. But at least a few researchers and think tanks issued warnings during recent years.

Washington - Amid controversy over predatory mortgage practices that center on race and ethnicity, some consumer advocates say the problem of gender-based discrimination is being overlooked.

The government currently screens for disparities based on race and ethnicity, but not on gender, making it difficult to assess precisely how widespread this type of discriminatory lending is. But two major advocacy organizations have indications that this type of expensive gender bias is quite common.

Allen Fishbein, director of credit and housing policy at the Consumer Federation of America, a think tank and lobby in Washington, D.C., says race- and ethnicity-based abuses are easier to spot because they are concentrated in distinct neighborhoods.

"We don't have neighborhoods by gender, so some of this isn't quite as obvious," he said.

Lending discrimination based on race and ethnicity has been cropping up in the headlines since 2005, when a Federal Reserve study of new home mortgage data revealed pricing disparities among racial and ethnic groups. That study caught the attention of consumer advocates and lawmakers who helped bring about House and Senate hearings on the problem last year.

Fishbein, meanwhile, identified discriminatory credit profiling of women in a December 2006 report that has attracted less notice.

In that report, Fishbein noted that lenders have been more likely to treat women as riskier borrowers - and sell them higher-priced "subprime" loans as a consequence - even though they have slightly higher credit scores than men.

Women and men use credit at the same rate, and women have an average credit score of 682, slightly better than men's 675 average, the report said. Still, about one-third of female borrowers took on subprime mortgages compared to about one-quarter of men, a discrepancy Fishbein attributes partly to gender discrimination.

Being categorized as a subprime borrower costs money. Homeowners in that category pay between $85,000 and $186,000 more over the life of their loans and divert a greater share of their monthly payments to paying off interest rather than building equity. This deprives them of an equal opportunity to build wealth through homeownership, Fishbein said.

"Lenders Have Discriminated"

The Center for Responsible Lending, a Washington-based think tank that highlights abusive financial practices, underscored the point in a 2004 brief that found that lenders had "discriminated on the basis of gender with respect to how much homeowners paid for their loans."

Data about the extent to which lending companies prey upon women is not available. But both groups - the Center for Responsible Lending and the Consumer Federation of America - cite federal case law as evidence the problem is real.

In 2000, for example, the federal government sued Delta Funding Corporation, a subprime mortgage lender based in New York, for allegedly charging African American women higher fees than white males with similar financial profiles.

In another case, the Department of Justice in 1996 sued Long Beach Mortgage Company, a subprime lender in Anaheim, Calif., for allegedly charging single, elderly African American women and other vulnerable groups more for loans than younger, white males with similar financial profiles.

Both companies settled the cases for millions of dollars instead of going to trial.

"Women especially are getting scammed," said Robert Brown, owner of Keep My Home Today, a company in Dunkirk, Md., whose clients are mostly women hoping to stave off foreclosure.

New Twist on Credit Bias

Putting women into a more costly borrowing category is a new twist on gender credit discrimination, which in years past barred women's access to the mortgage market.

Four decades ago, most women could not take out a mortgage loan on their own. Single women were considered too risky, married women could not get credit in their own names, and divorced women and widows had trouble proving their ability to pay back loans because their credit histories were in their husbands' names.

Prospects for aspiring female homeowners changed in 1968, when Congress enacted the Fair Housing Act, which barred homeowners from refusing to sell or rent to a consumer based on sex or other characteristics.

Six years later, Congress took a step further with the Equal Credit Opportunity Act, which required lenders to give businesses and consumers equal access to credit regardless of sex or marital status.

Still, gender discrimination in lending persists, said Joan Entmacher, director of family economic security at the National Women's Law Center, a think tank in Washington, D.C., that advocates on behalf of women. "People have assumed that credit discrimination against women is a thing of the past and obviously it's not."

Severe Consequences

The consequences of discrimination are severe: Subprime borrowers are more likely to face foreclosure than homeowners with lower-priced mortgages.

Dolores King testified to that in a hearing on predatory lending last year. A retired African American woman from the south side of Chicago, King was the victim of an identify theft scam four years ago that cost her about $3,000 and left her unable to pay mortgage payments on a home she had owned for nearly four decades.

Soon after she discovered the crime, a mortgage broker called and promised to come to the rescue with a nontraditional adjustable loan that would help King pay off the debt. What the broker didn't tell her was that within two years her monthly payment would nearly double to $1,488, more than her entire monthly income.

"I have been scraping by with the help of family and friends to get my mortgage paid every month, but I am now at the point where it is just impossible to continue," King told the Senate Committee on Banking, Housing and Urban Affairs.

Congress has been debating several bills that could help women, Entmacher said, including one that would change the terms of home loans during bankruptcy so certain borrowers - many of whom are women - could avoid foreclosure.

The bill faced stiff opposition from the lending industry and from the White House, which issued a veto threat on Feb. 26. Two days later, Senate Republicans used procedural tactics to block the measure. Democratic presidential hopefuls Sens. Hillary Clinton of New York and Barack Obama of Illinois have signed on as co-sponsors of the measure; Republican candidate Sen. John McCain of Arizona has not.

Other bills are also under consideration, but none carves out specific protections for discrimination against women, Entmacher said.

One way to do that would be to screen home mortgage data for gender-based pricing disparities, Fishbein said.

"With a couple of million people poised to lose their homes, the focus has been on emergency measures to deal with the foreclosure crisis," Entmacher said. "Prohibiting discrimination should be on their agenda, and it's not there yet."


For More Information:

Consumer Federation of America,
"Women Are Prime Targets for Subprime Lending"
[PDF format]: http://www.consumerfed.org/pdfs/WomenPrimeTargetsStudy120606.pdf

"Don't Look to Wall Street for Retirement Safety":
http://womensenews.org/article.cfm/dyn/aid/3469/

"Women Help Explain Sub-Prime Mortgage Jitters":
http://womensenews.org/article.cfm/dyn/aid/3088/

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