Several banks criticized for high-cost loans

Black and Hispanic borrowers nationwide are 6.5 times more likely than white borrowers to be given a high-cost loan from HSBC Bank USA, and 2.6 times more likely in Western New York, according to studies of bank lending data by a New York City fair lending group.

HSBC was one of several banks doing business in the region that were criticized in the report by Inner City Press/Fair Finance Watch (ICP).

The banks and a banking association have argued that the study is a misleading interpretation of the data. Basic factors that affect loan rates, like a borrower's credit history, were not considered, they said.

However, according to the study, in the Buffalo Niagara metropolitan area, 510 of 4,991 HSBC loans to white borrowers last year had interest rates above a certain threshold for reporting set by federal regulations. That's more than 10 percent of loans.

By comparison, 76 of 280 loans to black borrowers locally were at high rates, or 27 percent.

In all, more than 32 percent of HSBC's mortgages at all lending units nationwide were high-cost loans, the activist group said. That's more than at rivals such as

Citigroup, San Francisco-based Wells Fargo & Co., and National City Corp. of Cleveland, whose records the group also examined and denounced.

The ICP reviews also said that black borrowers nationally are more than five times as likely as whites to be handled by HSBC units for customers with bad credit.

And HSBC Mortgage Corp. denied black applicants nationwide 2.5 times more than white borrowers, the group said.

"HSBC charges its highest rates to those least able to pay them," executive director Matthew Lee said in a statement.

HSBC is the largest bank locally, with 64 branches and 37 percent of deposits. In all, it has $138 billion in assets and over 400 branches.

HSBC spokeswoman Kathleen Rizzo Young said Lee's analysis "can be misleading and inaccurate" because it combines the bank with a consumer finance unit for less-creditworthy borrowers. Even with that focus, she said, less than 45 percent of the higher risk finance business' loans - and less than 1 percent of the bank's loans - had high rates.

She said more high-rate loans were made to white borrowers than minority borrowers last year. And HSBC has developed products to help low- and moderate-income borrowers "in a fair and responsible manner."

"We take our fair lending and consumer protection practices seriously," she said. "We are confident that we are treating our customers fairly and with integrity."

Inner City Press studied 2004 mortgage lending data from more than a dozen major lenders. Besides HSBC, they include Citigroup, Charlotte-based Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo, M&T Bank Corp., Washington Mutual of Seattle, and Cleveland's KeyCorp.

None fared well, said Lee, whose harshest criticism went to HSBC and Citigroup. Both bought consumer finance firms accused of abusive lending. HSBC Holdings Plc bought Household International in 2003.

But banks say the data Lee is using is incomplete because it doesn't include a borrower's credit history, how much debt they have relative to their income, how big the loan is relative to the property value, or other factors banks use that may explain high rates. Even regulators caution the data is not a basis for conclusions.

"What he has done is taken a snippet of the entire lending portfolio of several lending institutions and drawn a conclusion, without all of the information and without all of the broader loan portfolio," said James Ballentine, director of community and economic development at the American Bankers Association.

"We don't want people to draw such broad conclusions that this data proves that lenders are discriminating."

M&T Bank spokesman Mike Zabel also questioned the report's methodology.

"It is unreliable . . . to draw conclusions from superficial and selective use of incomplete data," he said. The study does not "reflect the creditworthiness scores of the applicants or the reasons the applications were denied."

The reports come as New York Attorney General Eliot Spitzer launched a preliminary investigation of lending in the state by eight major banks, including HSBC. After an initial review of the same data, New York's top cop asked the companies for more information about how they base their lending.

Among banks Lee studied:

Citigroup nationally gave high-rate loans to black applicants more than 3.9 times as often as white borrowers, while Hispanic borrowers got such loans 2.07 times as often. Black applicants were denied loans 2.5 times more often than white borrowers, while Hispanics couldn't get loans 1.93 times as often as white applicants. In all, more than one in four Citigroup mortgages were at high rates.

"We consider each applicant by the same objective criteria, which are blind to race, ethnicity, gender and any other prohibited basis," said Citigroup spokesman Robert Julavits.

Locally, black borrowers at Citi were 1.28 times more likely to be denied loans and 1.21 times more likely to get costly loans. Hispanic borrowers were 1.56 times more likely to be denied and had the same likelihood of getting an expensive loan.

Kathleen Lynch, coordinator of the Western New York Community Reinvestment Coalition, said the statistics "reveal disturbing lending records."

"These statistics confirm a perception we often hear voiced in local minority communities - that these applicants will not be able to get a loan from a conventional bank," she said.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.