Black and Hispanic Home Buyers Pay Higher Interest on Mortgages, Study Finds

[Elizabethnhenry 0]

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June 1, 2006

Black and Hispanic Home Buyers Pay Higher Interest on Mortgages, Study Finds

By ERIK ECKHOLM

Black and Hispanic home buyers entering the fast-growing market for subprime mortgages tend to pay higher interest rates than whites with similar credit ratings, a statistical study by an advocacy group says.

The subprime industry makes loans at higher interest rates to people who cannot qualify for regular mortgages.

"When we compared borrowers with the same risk characteristics, African-Americans and Latinos were still more likely to get the higher-rate loans," said Debbie Gruenstein Bocian, a researcher at the group, the Center for Responsible Lending.

A spokesman for the mortgage banking industry challenged the conclusion, saying the report did not take into account all the legitimate questions about family wealth and debt, house appraisal and other factors that underwriters must consider when making a loan.

Racial disparities in mortgage lending have been studied and debated for decades, with the focus shifting in recent years from the practice of denying mortgages in certain minority neighborhoods, or redlining, and a lack of loans for minorities to the pitfalls of the subprime industry.

As many as one in five home loans are now subprime, totaling more than $500 billion a year, said Keith S. Ernst, an author of the report who is an analyst at the lending center, in Washington.

Borrowers typically pay two percentage points higher than they would for conventional loans. Some, judged the riskiest cases, are charged higher rates, forcing them to pay hundreds of dollars extra a month.

The study, using federal and industry figures from 2004 to analyze a sample of 50,000 loans, found that among subprime borrowers with similar credit ratings, blacks and Hispanics were 30 percent more likely than whites to be charged the highest interest.

In response to earlier studies of racial disparities, the mortgage industry has argued that the varied financial backgrounds of borrowers and a tendency for minority buyers to offer lower down payments were mainly responsible.

The authors of the new report said they had, for the first time, taken credit scores and down payments into account, leaving an unexplained racial difference.

Doug Douglas, chief economist of the Mortgage Bankers Association of America, said in a telephone interview that although "the issue of disparities is very important," the new study still failed to capture the complexity of mortgage underwriting, especially in the subprime market, where borrowers do not have top credit ratings under traditional criteria.

The findings were endorsed by representatives of the National Association for the Advancement of Colored People and the National Council for La Raza. The authors said high-cost lenders appeared to focus on minority neighborhoods. They expressed concern about incentives that lending agencies give to mortgage brokers, saying the incentives reward brokers for steering customers to the most expensive loans.

Joe Falk, a board member of the National Association of Mortgage Brokers, said brokers fully disclosed all fees and were unfairly castigated for offering consumers alternatives that fit their needs and preferences.

"We've expanded home ownership by going into neighborhoods not served by others," Mr. Falk said by telephone from Miami.

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Edited June 5, 2006 by Elizabethnhenry

[babybunny 2]

Coz, G. dubya said so

[Jamaica to CT 0]

This is sad to hear as I've been working in banking/mortgage lending for the past 18 years and I've been employed with a sub-prime lender for the last 3 years. Although there are fair lending laws to prevent such disparities; there are certain lenders who have not followed those laws and have been fined as a deterent. Personally I do believe that minority neighborhoods are targeted for these unfair practices.

Michele

[Fischkoepfin 1]

Another manifestation of continuing racism; I read this book a few years ago that claimed that for every dollar in wealth a white man owns, a black man holds 19 cents. And lending practices are a primary reason because while wage gaps disappear (I think it's around 63 cent to the dollar now), the wealth gap, which measures social status in society more accurately because it's based on assets, actually grows. Thanks for posting this.

[ChristinaM 0]

In fact, this has been known for quite some time. There are mortgage brokers who admit that they push black and hispanic people and "those who seem uneducated" into a subprime mortgage, even if they would qualify for a lower-rate one.

As for "fair lending laws", once the market was effectively deregulated the credit providers proved not so good at playing fair and effectively regulating themselves. The loss of the usury protection laws hurt a lot of people. The US lending industry is swimming with sharks and it's really important to find a lender that you trust - be it for loans, credit cards or a mortgage.

And don't get me started on store cards. Sears actually makes more money from its credit division than it does selling merchandise.

[Mr. Big Dog 10,747]

And don't get me started on store cards. Sears actually makes more money from its credit division than it does selling merchandise.

Doesn't surprise me. The only Sears CC offers I have ever seen had a 22.9% or higher interest rate attached to them. What a rip-off! What surprises me is that people actually sign up for that kind of ####### or, worse yet, actually carry balances on such cards...

[cmartyn 0]

Well, you get 10 - 15% off that days purchaces.. thats why people end up with them.. e.g. Go into sears and buy a lawn tractor.. you whip out your nice 10% no fee Visa card.. they offer you 15% off today, just sign up for their card.. Hard to avoid it almost at that point.

As far as this Blacks and Hispanics charged more deal.. I would suspect part of it is they dont shop as well. When getting a mortgage, one has to negotiate fairly hard and pit bank against broker to get the best rates. Even after an exhaustive period of research, some moop in the cube next to you will get 1/4 point better cause his mom knows someone or whatever.

I notice also that the survey didnt seem to mention residency status. That may be part of it as well. Lenders for undocumented immigrants tend to charge a little more.

Edited June 5, 2006 by cmartyn

[pedroh 21]

that sucks.. they better not mess with EL Presidente when it's time to buy a house lol

[w¡n9Nµ7 §£@¥€r 123]

I guess I don't get it. When I was shopping for my house, I got quotes online from lendingtree.com and I got quotes from a few local banks. How does race get factored into this? With the banks, I seem to recall filling out some forms and they fed it into the computer and the computer came up with my quote. I'm unclear on how this discrimination happens.

[pedroh 21]

I guess I don't get it. When I was shopping for my house, I got quotes online from lendingtree.com and I got quotes from a few local banks. How does race get factored into this? With the banks, I seem to recall filling out some forms and they fed it into the computer and the computer came up with my quote. I'm unclear on how this discrimination happens.

[w¡n9Nµ7 §£@¥€r 123]

I guess I don't get it. When I was shopping for my house, I got quotes online from lendingtree.com and I got quotes from a few local banks. How does race get factored into this? With the banks, I seem to recall filling out some forms and they fed it into the computer and the computer came up with my quote. I'm unclear on how this discrimination happens.

What did I say?

[pedroh 21]

lol nuthing.. but.. U're right.. now I want that answer!!

[w¡n9Nµ7 §£@¥€r 123]

lol nuthing.. but.. U're right.. now I want that answer!!

Well... it is possible that the average black/Hispanic buyer has a lower credit score than your average white buyer. That lower average might account for higher average rates.

[pedroh 21]

lol nuthing.. but.. U're right.. now I want that answer!!

Well... it is possible that the average black/Hispanic buyer has a lower credit score than your average white buyer. That lower average might account for higher average rates.

well.. of what i've seen, my latino customers don't have the slightest idea how does credit work (which i dont blame'em lol, it takes a while to learn the game).. and they think credit just builds because of time, rather than with spending and more spending.. a lot of them got radioshack credit cards (very difficult to obtain, very very difficult to pay, its a pro's card) and didn't know they had credit at all lol

[w¡n9Nµ7 §£@¥€r 123]

lol nuthing.. but.. U're right.. now I want that answer!!

Well... it is possible that the average black/Hispanic buyer has a lower credit score than your average white buyer. That lower average might account for higher average rates.

well.. of what i've seen, my latino customers don't have the slightest idea how does credit work (which i dont blame'em lol, it takes a while to learn the game).. and they think credit just builds because of time, rather than with spending and more spending.. a lot of them got radioshack credit cards (very difficult to obtain, very very difficult to pay, its a pro's card) and didn't know they had credit at all lol

Right. Same is true for many Indians I know. And what's worse, many of these Indians who do not speak English too well and do not trust (or know how to use) the Internet, end up going to Indian-run banks when it is time for a mortgage. And they get ripped off big-time.