CUSTOMERS OF COLOR AT SOME OF THE nation's mortgage magnates—including HSBC Holdings, Wells Fargo, Citigroup, and Countrywide Financial Corp.–aren't getting a fair shake when it comes to interest rates, reports community watchdog group Inner City Press/Fair Finance Watch. In its review of the Home Mortgage Disclosure Act data, the organization, which ensures fair lending to urban communities, found that minorities were more likely to pay at least 3 percent to 5 percent above the going rate for Treasuries, depending on the type of mortgage.
ICP/FFW Executive Director Matthew Lee says the research is raising some eyebrows—especially when some lenders such as HSBC Bank are six times more likely to give blacks high-cost subprime loans than whites. Lee says that he expects to find some disparity but that the current rate spread is unacceptable and needs to be reigned in. “The mortgage lender has a duty to treat similarly situated people the same,” he explains.
Many of the lenders under investigation say that the higher rates reflect a pricing by risk, as many minorities have lower FICO scores, little down payment money, and high debt-to-income ratios.
Builders with lending arms also should take note, as Lee's organization “is working [its] way down the food chain.” ICP/FFW has reviewed data for 100 top lenders—including CTX Mortgage—and plans to keep plowing through the list. However, Lee says most mortgage companies “don't need to lose sleep about it.” As long as their data align with the bulk of their competitors' data, there's no real concern. However, if the numbers don't, lenders should take a closer look at their policies. Lee's advice: “Have a matrix and stick to it.” In other words, to ensure fair lending policies, lenders should establish a standard formula for determining interest rates.