North Carolina’s 1999 anti-predatory lending law has caused lending to decline among minority and low-income borrowers, according to the findings of a study released today by the Mortgage Bankers Association.

The study, conducted by Abt Associates, analyzed the changes in lending in North Carolina and neighboring states of Tennessee and South Carolina before and after passage of the North Carolina law. Abt Associates examined lending volumes on a neighborhood-by-neighborhood basis for prime and subprime lenders.

“The study reveals, vis-à-vis the anti-predatory lending bill, the North Carolina state legislature has imposed a modern-day form of redlining on its citizens by choking off mortgage credit to minority and low-income neighborhoods,” said Robert M. Couch, MBA’s chairman. He also is president and CEO of Birmingham, Ala.-based New South Federal Savings Bank. 

Some of the study’s major findings include:

  • There was a 1.2 percent decline in overall lending in predominately minority neighborhoods in North Carolina after passage of the law, compared with a 5.2 percent increase in minority neighborhoods in the comparison states. Loans by subprime lenders declined 8.1 percent and loans by prime lenders increased 0.7 percent. In the comparison states, loans by subprime lenders increased 4.6 percent and loans by prime lenders increased 5.4 percent.

  • Subprime lending grew at a slower rate in North Carolina than in the comparison states for all neighborhoods regardless of racial or income composition, but prime lending in the predominately white neighborhoods grew sufficiently so that the growth of total lending in predominately white neighborhoods matched the growth in the comparison states.

  • There was a decline of 11.4 percent in subprime refinance loans in North Carolina, compared with a 4 percent increase in the comparison states. However, subprime loans to purchase homes also grew at a much slower pace in North Carolina than in the comparison states, up 124 percent versus 146 percent.

  • While overall subprime lending decreased in North Carolina, subprime lending by firms owned by federally regulated financial institutions increased. While lending by independent subprime firms dropped 41.5 percent, lending by subsidiaries of bank- or thrift-owned companies increased 111 percent. A similar pattern occurred in the comparison states, although not of the same magnitude.

The study also found that lending in North Carolina would have been even lower had it not been for increased lending by bank and thrift-owned subprime firms, which were essentially exempt from the provisions of the North Carolina law.


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