New York City's subprime lending rates are much higher than other comparable large cities, which is putting homeowners in danger, according to a new study done by NYU's Furman Center for Real Estate and Urban Policy.
The study also found that in New York, blacks are four times more likely to receive subprime loans than whites, and Hispanic borrowers are three times more likely.
But not enough is known to draw the kinds of conclusions that are being drawn about discrimination in light of the report, said Julia Vitullo-Martin, a senior fellow at the Manhattan Institute, a nonprofit research group that supports and publicizes research on public policy issues.
"The data is showing correlations, not cause and effect," she said, "and most of the discussion you see on subprime lending has to do with cause and effect."
Subprime loans are typically made to borrowers with bad credit histories and are helpful to people with more modest incomes. These loans sometimes have higher interest rates than more traditional loans, or adjustable rates. This makes the mortgage more difficult to repay once interest rates are reset. The loans can also carry higher fees and prepayment penalties, which put borrowers at a higher risk for foreclosure.
Between 2005 and 2006, the national rate of subprime lending dropped five percentage points, from 17.9 percent to 12.8 percent. This was after several years of rising rates. But during the same time period, New York City rates dropped only four percentage points - from 23 percent to 19.8 percent, according to the report.
Solomon Greene, a research fellow at the Furman Center, said subprime loans are often from independent mortgage companies rather than banks.
"You often find that a particularly high percentage of subprime loans originated in non-bank institutions," he said.
The Furman Center, which employs about 30 NYU students as research assistants, is a joint initiative of NYU's School of Law and the Robert F. Wagner School for Public Service devoted to public policy issues such as real estate development and housing. The center studies the Home Mortgage Disclosure Act's data each year to examine lending patterns.
When looking at two neighborhoods of the same income level that varied on the issue of race, they saw a difference in the rates of subprime lending, Green said.
Vitullo-Martin said that in New York's Chinatown, the percentage of subprime lending was zero, but in the Italian neighborhood of Bensonhurst, Brooklyn - where income levels are similar to Chinatown - there is a 5 percent subprime lending rate.
"In New York ... if you look at the neighborhoods that they're listing and you look at median income, you see that the relationship is not one of poverty or low incomes associated with subprime lending, it's something else," she said.
Vitullo-Martin said that many are making the assumption that subprime lenders are discriminating, because in predominantly black neighborhoods such as Fordham, University Heights and the Bronx, the subprime lending rate is almost 50 percent.
But, she said, "All we've got here is a correlation,"
Some neighborhoods, often Italian or Jewish ones, have family or community bankers that are not part of the formal banking structure, but supply a source of credit, Vitullo-Martin said.
She added that "the question of what kinds of other form of lending is there is very important."
Greene said that they cannot make the distinction that discrimination is involved in their conclusions since the type of data they would need is not available to them.
"[The report from HMDA] doesn't include data on borrower credit scores, average credit scores for neighborhoods, or the value of the property that the person is buying," he said. "There could be major differences between property that whites and blacks are buying."
"I'd like to see Furman look more closely at neighborhoods that don't have subprime lending to see why that is," Vitullo-Martin said.
Amanda Coleman is deputy news editor. E-mail her at acoleman@nyunews.com.
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