The predators

How unscrupulous mortgage lenders target African-American homebuyers

Five years ago, purchasing a home was a priority for Tonia Nolden. After moving from Atlanta to Louisville with her twin daughters, the community organizer got engaged, and thanks to a healthy credit score, she was quickly approved for a home loan.

“Moving into one place together as a married couple and starting a new life was very important,” she says. “We decided to do this right and go out and shop for a home.”

With a target price of $85,000, the couple was thrilled to find Dominion Homes, an Ohio-based company that specializes in constructing clusters of affordable, custom-built houses. The company channeled Nolden to a preferred broker who promised she would get a fixed-rate mortgage on a new home under construction in the Highview neighborhood in southeastern Louisville.

“I told them if we don’t get a fixed rate it isn’t a deal and I could go somewhere else,” she says. 

But when the closing date arrived, the paperwork laid out a mortgage that shifted to an adjustable rate after two years.

Although Nolden wanted to back out, it was too late — the house was built. They could always refinance later, she was told, and if she pulled out now she’d have to pay penalties.

Not long after signing the mountain of paperwork, Nolden and her fiancé were married.

Four years and a foreclosure later, they filed for bankruptcy, after their monthly mortgage payments ballooned by almost 100 percent.

It’s a story that is all too common.

Although America’s housing crisis is worsening across the board, there’s an alarming trend of racial disparity in the mortgage business, and studies suggest predatory lenders have made a practice of targeting middle-class African-Americans like Nolden.

A recent study conducted by the National Community Reinvestment Coalition found that in Louisville Metro, 42 percent of middle- to upper-income African-American borrowers purchased “high-cost” loans, compared to only 18 percent of their white counterparts.

“Ms. Nolden has a pretty typical situation when it comes to loan practices [among] minorities,” says Ben Carter, an attorney with the Legal Aid Society. “They are promised fixed-rate loans and when they show up at the closing they have an adjustable-rate mortgage in front of them.”

Last week, Carter participated in a panel discussion about unequal mortgage lending hosted by the Metropolitan Housing Coalition, PNC Bank and several local housing advocacy groups. During the forum, Carter suggested prejudice plus opportunity fuel these statistics, and that although consumer awareness is important, more regulation is needed.

In an interview, Carter said that unfortunately, Nolden’s situation is textbook, particularly the addition of a last-minute clause saddling her with an adjustable-rate mortgage, a practice that disproportionately affects African-Americans.

Nolden’s initial monthly payments were $700, but once the adjustable rate kicked in she was paying more than $1,200.

Now, Nolden has filed complaint with the Better Business Bureau and the Kentucky Department of Financial Institutions. Although Nolden contacted the Kentucky Attorney General’s Office about her experience with Dominion, nothing came of the complaint.

In 2006, however, the Ohio attorney general launched an investigation into loans arranged by Dominion Homes. That was after a group of homeowners in Ohio filed two class-action lawsuits against the company.

Dominion Homes has not returned a request for comment.

“The role of our office has been mostly education for Kentucky consumers so they don’t get in that situation to begin with,” says Allison Martin, a spokeswoman for Kentucky Attorney General Jack Conway.

In January, the attorney general’s office announced a $1.6 million settlement in a multi-state lawsuit against Countrywide Financial Corp. for partaking in predatory lending practices.

But Cathy Hinko, executive director of the Metropolitan Housing Coalition, says lenders need to be held accountable for racial disparities in lending, and that the state needs to monitor home loans more closely.

“Regardless of income, African-Americans are twice as likely to have high-cost loans as white households. These numbers are not slight differences, they are shocking differences,” says Hinko.

Meanwhile, Tonia Nolden says after everything her family has been through, she is satisfied as a renter: “I think of myself as a very intelligent person and I thought I knew enough about the system to negotiate a good rate, but it blindsided me and I feel really ashamed and defeated.”