Few FHA loans go to minorities, study says
Over four years, 78.1 percent went to city's white neighborhoods, group finds

May 21, 2002

By Maureen Sieh, Staff writer

A federal mortgage program created more than 60 years ago to stimulate the nation's housing market is reaching few people in low-income and minority neighborhoods in Syracuse, according to a national study analyzing the Federal Housing Administration's performance over a four-year period.

Of the 2,169 FHA loans issued in Syracuse between 1996 and 2000, 29 or 1.3 percent went to predominantly minority neighborhoods compared with 1,694 or 78.1 percent that went to white neighborhoods, according to the study released today by the National Training and Information Center, a Chicago-based group that provides training and research for neighborhood groups nationwide. The remainder of the FHA loans in Syracuse - 446 or 20 percent - went to integrated neighborhoods.

The study, which examined the FHA's default activity and lending performance in 22 cities, shows that 4.9 percent or 107 of FHA loans went to Syracuse's low-income neighborhoods. People in moderate-, middle- and upper-income neighborhoods received a majority of the loans, according to the study.

The study also found that 2.3 percent or 52 of the FHA loans issued citywide resulted in foreclosure. In a majority of the 22 cities, people in low- and moderate-income neighborhoods had high default and foreclosure rates on FHA loans.

The group wants the U.S. Department of Housing and Urban Development, the agency that manages the FHA program, to push banks to develop programs to help people keep their homes. The group examined the FHA program because it was created in 1934 to stimulate the nation's housing market, said Cathy Klump, author of the study, "Families HUD Abandoned."

The report is another indication of discrimination against homeowners in poor and minority neighborhoods, said Phil Prehn, South Side organizer for Syracuse United Neighbors.

"They're not only being discriminated against for regular bank loans, they're discriminated against for government-insured loans," he said.

When people can't get FHA or a regular bank loans, they turn to sub-prime lenders, who offer high interest rates, Prehn and Klump said. When those homeowners fail to keep up with the high-interest mortgages, the lenders end up foreclosing on the homes, which contributes to the large number of vacant homes in some city neighborhoods, Prehn and Klump said.

FHA Commissioner John Weicher said the department recognizes the group's concerns but disagrees with some of its findings.

Last year, the number of FHA loan foreclosures was at its lowest in 10 years - 62,178 people nationwide, Weicher said in a statement. The number of HUD homes that became vacant after foreclosures declined from 45,000 in 2000 to 29,000 today, he said.

In recent years, the FHA has terminated from its program 100 lenders who have high default and foreclosure rates, he said.

"FHA exists to encourage homeownership among first-time home buyers and minority buyers, and is assuming risk in doing so," he said.

Officials at some local banks said FHA loans are only one of many mortgage programs available to potential homeowners.

Michael Zabel, a spokesman for M&T Bank, said the study is limited because it gives an incomplete picture of the lending activity in the area. Besides FHA, the bank offers special mortgage products to first-time home buyers that include low rates, low down payments and credit counseling. When homeowners fall behind on their payments, the bank develops payment plans to ensure that they don't lose their home, he said.

At HSBC, officials are more likely to market their own mortgage products than FHA loans, said Edward Schultz, a vice president. Customers are discouraged from obtaining FHA loans because a lot of paperwork and restrictions are involved, he said.

"It's a much more difficult product to deal with," Schultz said.