While the U.S. Senate fights over whether it will tackle Wall Street reform, the Obama administration continues to lay out its plan for transforming the troubled industry, including its intention to alleviate the burden on African Americans.
In a recent conference call with the black press, Dr. Cecilia Rouse, a member of the White House Council of Economic Advisors, said the previous decade’s boom time for the housing market and big banks was especially harsh on the black community.
“The banks used mortgage loans with both teaser rates and terms that included no down payments to entice consumers into purchasing homes,” said Rouse, an economics professor currently on leave from Princeton University.
“And unfortunately, African Americans were targeted for these types of mortgage products and three times more likely than any other group to receive subprime home loans,” she said.
The president’s plan will establish a new consumer financial protection agency that will have the power to set clear rules and ensure that financial firms are held to certain standards.
Rouse said the reform will benefit black people by making the market easier to understand and with a high degree of transparency.
“In 2005, more than 53 percent of loans sold to African-American borrowers to purchase homes were subprime or higher priced loans,” she said.
Statistics support the administration’s claim that the housing market fiasco is adversely affecting blacks. The housing gains that blacks enjoyed from 1995 to 2004, during which homeownership rates increased from 41.9 percent to 49.4 percent, began to decline, resulting in a black homeownership rate of 47.5 percent in 2008.
One key aspect of the reform measure is to simplify the mortgage application process.
“The piles of forms needed for a regular mortgage can be overwhelming, and many brokers have taken advantage of that confusion to give borrowers loans they didn’t need or couldn’t afford,” Rouse said.
Payday lending and other alternative financial services will also be subject to greater scrutiny under the proposed reform measures.
“The new consumer financial protection agency will be able to establish, for the first time, robust federal supervision and oversight over larger, alternative financial service companies such as check cashers and payday lenders. The agency will be able to combat abusive and predatory practices that harm consumers,” Rouse explained of the controversial, yet burgeoning financial industry.
Proponents of the alternative lending merchants say they are a much-needed solution for people who need access to quick cash.
Critics say the immediate cash infusion is an expensive practice that costs consumers more in the long term.
The Organization for a New Equality, a Massachusetts-based non-profit civil rights organization that works to change negative attitudes and discriminatory practices in low-income communities and communities of color, did a study that showed how expensive immediate cash infusions can be.
According to the study, a person who makes $1,050 after taxes each month, and uses a typical check-cashing store, will pay an average of $219.24 in fees a year, compared with $30 a year for a typical, basic checking account.
John Caskey, an economics professor and author of Fringe Banking: Check-Cashing Outlets, Pawnshops, and the Poor, said industry and consumer groups can argue “until they’re blue in the face” but in the end, “it’s not really clear whether the industry is doing customers a favor.”
Photo: President Barack Obama