The study used a sample of 275 subsidiary lenders owned by 15 of the largest lenders in the country. These lenders represent 65.5 percent of all residential mortgages that were originated in 2005 and 55 percent of the sub-prime market. Each of the lenders was asked to provide the public version of data they collected as mandated by the Home Mortgage Disclosure Act (HMDA) which includes information on the race, gender, and census tract of each applicant and whether the applicants received high-cost loans (those with an Annual Percentage Rate or APR 3 percent or more above the rate on comparable U.S. Treasury securities) or a sub-prime loan.

The report stated that "until this year there has been little recognition of the prevalence of adjustable interest rates in sub-prime loans and the danger posed by these ARMS." The focus instead has been on predatory practices such as excessive fees, high interest rates, and balloon payments.

Sub-prime loans are generally tailored for a market where people cannot obtain a conventional loan at a standard rate but Freddie Mac and Fannie Mae have estimated that at least one-third of sub-prime borrowers could actually have qualified for a lower cost mortgage so, it would seem that a "large number of the borrowers who have received ARMS should not have been in the sub-prime market."

The ACORN study found 32 markets where at least one out of three loans given out was high cost and thus subject to rate reset shock. In ten of these markets high cost loans represented two-fifths of the home purchase and refinance mortgages. The ten were Detroit and Flint Michigan; Memphis, Tennessee; Jackson, Mississippi; McAllen, El Paso, Laredo, and Brownsville, Texas; Springfield, Illinois; and Birmingham, Alabama.

And the risk was not limited to the low income in minority areas. Upper-income minority borrowers were found to be at greater risk than white borrowers of similar income. In 12 metropolitan areas upper-income African-Americans were at least three times more likely than their white counterparts to receive high-cost refinance loans and in 15 metropolitan areas upper-income African-Americans were at least five times more likely to receive a high-cost purchase loan than upper-income whites. These areas are mostly southern or east coast (Atlanta, Baltimore, Charleston, Durham, Jackson, NYC, Washington, DC; but Milwaukee and San Francisco were included in the mix.

Borrowers with prepayment penalties and minimum equity may be unable to refinance out of a loan that, once it readjusts, they can no longer afford. The study quotes research by First American Real Estate Solutions that up to 1 million households are in danger of losing their homes through foreclosure aver the next five years because they will not be able to afford new payment levels and will owe more on their homes than they can recoup through a sale or refinance. The ACORN report indicates that the impact of rate reset shock may be concentrated in certain metropolitan areas, neighborhoods, and among certain demographic groups. This might possibly magnify the impact as forced sales and foreclosures flood the market and further drive down prices.

Edwina Baniqued