Homeownership - NY Times - Black and Hispanic buyers pay higher interest

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Published in the New York Times, Thursday, June 1, 2006

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.

http://www.nytimes.com/2006/06/01/us/01minorities.html?pagewanted=print

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