YEARS AGO, MINORITIES OFTEN WERE TURNED down when they applied for mortgages. Now, they're likely to be approved, but at a higher interest rate than whites.
In a Sept. 13 report from the Federal Reserve, economists examined 2004 mortgage data and found that 32.4 percent of blacks and 20.3 percent of Hispanics were charged a high interest rate for a home loan—defined by the federal government as 8 percent or higher. Among whites, 8.7 percent paid a high interest rate. Asian-Americans had the lowest incidence (8.1 percent) of paying a high interest rate.
The Fed economists then adjusted the minority data to include such factors as loan amount, income, and location. (Credit scores of borrowers are not included in the collected information.) With that information considered, 15.7 percent of blacks and 11.6 percent of Hispanics still received higher-priced loans.
The analysis came from information reported in compliance with the Home Mortgage Disclosure Act, which requires lenders to disclose information about their applicants. This was the first year that lenders had to report the interest rates they charged for loans.
More than two-thirds of the disparity can be explained by differences in borrower-related characteristics and their choice of lender, the report says, but some “unexplained differences remained.”
The identity of the originating lender actually explains more of the disparities than does borrower traits, says the North Carolina–based Center for Responsible Lending in its review of the report. One reason could be that prime lenders are underserving minority borrowers. Or, brokers could be steering minority borrowers into higher-cost loans than they might qualify for because the broker gets paid more for those loans.
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