Study: Predatory Lenders Partly to Blame for Housing Crisis

Predatory lending focused on ethnic minority neighborhoods was a significant factor in the U.S. foreclosure crisis, according to a new study.

Predatory lenders offer loans with unreasonable fees, interest rates and payment requirements. Examples include some pawnshops, payday lenders and check cashing services.

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With a lack of traditional banking services, these neighborhoods were easy prey for this type of lending, Reuters reported. As the mortgage-backed securities market grew in the 1990s, the predatory lenders were able to offload their risky loans in the secondary market, the study, published in the American Sociological Review, said.

"By definition, segregation creates minority dominant neighborhoods, which, given the legacy of redlining and institutional discrimination, continue to be underserved by mainstream financial institutions," the study said.

Redlining is when a bank denies or raises the cost of financial services to residents in a specific area.

By focusing on the data from the 100 largest U.S. metropolitan areas, the researchers found that living in an African-American area, and to a lesser extent a Hispanic area, were "powerful predictors of foreclosures."

Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh wrote the study.