Blacks and hispanics get more high-interest subprime mortgages than do whites, even when the borrowers have the same risk factors, says a new report by the Center for Responsible Lending, a nonprofit research and policy organization based in Durham, N.C.
The report charges that the banking industry's long-standing explanation that they charge more because blacks and Hispanics tend to have shakier credit histories and present a higher risk is plain wrong.
“With release of our research today, we've advanced the debate over racial disparities by showing that the industry's usual explanation is wrong,” says the study's author, Debbie Gruenstein. “The debate now needs to move on to what Congress and the states must do to prevent these disparities.”
Factoring in the usual differences, such as credit scores and down payments, blacks and Hispanics still end up paying more for their loans, the report says. The author examined 50,000 subprime loans and found that borrowers of color were almost a third more likely to get a high-priced loan than were white borrowers with similar credit profiles.
The Washington-based Mortgage Bankers Association questions the author's methodology. “We looked at [the report], and we don't have access to their data, so we haven't been able to replicate their methodology,” says Mike Fratantoni, a senior economist with the association. Fratantoni says the author did not include other important risk factors, such as debt-to-income ratio. Moreover, he says, the loan origination market is very competitive, so there are opportunities for borrowers to get a good deal.
“We think that it's important for buyers to shop around and understand their loan terms,” Gruenstein says. “But this requires a policy solution.” As a result, she recommends that Congress put controls on fees lenders pay to brokers; require mortgage brokers to act in the best interests of their customers; and make brokers and lenders disclose clearly that borrowers are being charged a higher interest rate than they qualify for.
For a copy of the report, visit www.responsiblelending.org.
Learn more about markets featured in this article: Durham, NC.