Consumer group warns of adjustable-rate issue/Study says minorities at risk for

Aug 16, 2006

Houston homeowners, especially minorities, face higher risks of foreclosure because of the rise in rates for adjustable-rate mortgages, according to Association of Community Organizations for Reform Now.

The consumer group released a study Tuesday that found in the Houston area, about one in four home loans is made at a rate higher than conventional loans. Fixed-rate 30-year mortgages are running about 6 percent, according to bankrate.com.

ACORN also is worried that many of those with adjustable-rate mortgages, which made up three-quarters of all subprime, or nonconventional, loans in 2005, will find themselves saddled with debt as interest rates rise.

Adjustable-rate mortgages usually have lower opening rates that last for a set period, and then move up or down in response to changes in the Treasury bill rate or the prime rate.

"It's going to cause some problems in the Missouri City area, where it's already happening with lots of foreclosures," said Morgan Stevenson, an organizer with the Houston chapter of ACORN. "There's people losing their homes left and right because they got pulled into a high-interest loan."

ACORN said borrowers in the subprime market are often steered into adjustable-rate mortgages without being given a choice and have little knowledge of how they work or the risks associated with these loans.

The group is urging lawmakers to pass strong anti-predatory lending laws to protect consumers from abusive practices that they say disproportionately affect low-income and minority communities.

But James Vallentine, director of housing for the American Bankers Association, said adjustable-rate mortgages are nothing new and are sold to everyone, not any specified race or group.

"Each loan is based on its own merits and each individual's own merits based on credit scores, debt-to-income ratios and lots of other factors," he said.

Still, Stevenson of ACORN said, some lenders aren't upfront with consumers about what they're getting into.

"It's about pitching folks ethically," he said. "We need to have more places that give consumers information as opposed to banks giving nonconventional loans. If predatory acts are happening, how can the fat cat sit back and say consumers just didn't know?"


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