Some lenders will try to take advantage
of you -- here's how to beat them
By Holden Lewis • Bankrate.com

If you belong to a racial minority or live in a low-income neighborhood, you can increase your chances of getting a mortgage that doesn't take advantage of you.

In other words: Discrimination is a valid concern.

Predatory lenders tend to target residents of low-income neighborhoods, charging rates and fees that put borrowers in danger of defaulting. And many believe that minorities suffer from mortgage-lending discrimination, although proof is hard to find.

But there is little doubt that some people are not offered the best mortgage deal they could qualify for.

In 1992, the Federal Reserve Bank in Boston analyzed mortgage lending in that city and concluded that black applicants were one and a half times more likely to be rejected for a mortgage than white applicants with similar finances.

The study, by economist Alicia Munnel, became the target of much criticism. Some faulted it for relying on information containing lenders' data-entry errors; others took issue with Munnel's method of statistical analysis. But it remains the most thorough study of its kind.

In the end, it boils down to how you, as a mortgage applicant, believe lenders will treat you.

If you suspect that lenders might try to take advantage of you because of your race or the neighborhood you live in, the following advice might come in handy.

Try a nonprofit
Some of the best mortgage deals available anywhere can be found through nonprofit agencies that have lending agreements with banks. You can thank the federal Community Reinvestment Act, which requires banks to lend in areas where they take deposits. Although enforcement is often more rumor than fact, banks sign deals with community groups, which then send loan applicants to those banks.

These nonprofit agencies abound by the dozens, mostly in big cities. Two with numerous urban outposts are Association of Community Organizations for Reform Now (ACORN) and Neighborhood Assistance Corporation of America (NACA).

NACA acts as a combination mortgage broker and pressure group. People who get mortgages through NACA are required to attend several activities annually -- such as marches to protest banks' lending practices. ACORN involves itself in advocacy efforts, too.

Loans brokered through nonprofits are available to applicants who meet income or residency requirements. They're for low to moderate earners and people moving into neighborhoods that are underserved by banks.

Go to the counselor's office
A good housing finance counselor will teach you how to improve your credit, draw up a budget and figure out how much house you can afford. Some can act as a broker and send you to the right mortgage lender.

"They're an independent person who can go over your finances with you to evaluate what your options are," says Valerie Coffin, a national researcher for ACORN. She says that an ACORN counselor will get a copy of your credit record with the goal of clearing up any inaccurate information and mitigating any poor credit history.

"You really want to know what your credit is," Coffin says.

Hundreds of nonprofit agencies do this kind of work. The federal Department of Housing and Urban Development compiles a list of approved agencies called the housing counseling clearinghouse. You can find the nearest agency by calling (888) 466-3487 and pressing 4 to talk with what HUD calls a "resource specialist." Apparently, HUD selects job titles by scribbling words on scraps of paper and drawing them out of a hat.

You better shop around
The best loans go to people who compare at least four or five offers, so it pays to approach several lenders. A good place to start is one of the HUD-approved agencies, where a counselor might be able to point you to the lender who can offer the best deal.

Whether you go to a counseling agency, you should start by talking to loan officers from traditional banks and mortgage brokers, says Matthew Lee, executive director of Inner City Press/Community on the Move. The Bronx, N.Y.-based consumer advocacy organization is, among other things, an active foe of predatory lending.

Lee says you're asking for trouble if you go first to a subprime lender -- a company that specializes in giving loans with high rates and fees, usually to people with flawed credit.

Examples of subprime lenders include Norwest Financial, The Loan Zone, and the now-defunct Money Store.

Here's the problem: A subprime lender will extend you a loan with high rates and fees -- even if you're eligible for a sweeter deal from a regular bank.

"Currently, the law doesn't require (subprime lenders) to treat you fairly on pricing or anything else," Lee says. "They say they see no legal or moral duty to give an 'A' mortgage to someone with 'A' credit."

Indeed, subprime lenders operate on the assumption that you're turning to them because you've been rejected by banks and traditional mortgage lenders. Unfortunately, some loan-shoppers go first to subprime lenders because there are no bank branches in the neighborhood.

Although he knows comparison-shopping is time-consuming, Lee says he tries "to encourage people to be sure to not only check with institutions that have a presence in the Bronx, but to go down to Manhattan."

If a lender discourages you from applying elsewhere, heed the advice of Leila Amirhamzeh, a CRA organizer with New Jersey Citizen Action: "Don't let anyone tell you that you have no options."

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