Consumer Advocacy Group’s Study Shows Some Home Loan Rates Still Based On Race
The Philadelphia Daily News reports that African-American and Hispanic home buyers are more likely to pay higher home loan rates than white borrowers with similar credit scores and income levels.
The Center for Responsible Lending, a consumer advocacy group, said either mortgage companies are charging higher rates to the minority customers or the borrowers are being adversely steered to discriminatory loan providers that specialize in higher rates.
Using industry data, the Durham, N.C.-based non-profit organization broke down credit ratings, down payments and other financial information on about 177,000 loans made in 2004 by companies which charge higher interest rates than banks (known as subprime lending).
The lenders provided the borrowers’ income and race, and the study, which was released Wednesday, found that blacks were 29 percent more likely than whites to pay a high interest rate on fixed-rate home loans. Would-be Hispanic buyers were also likely to pay a higher rate.
“African-Americans and Latinos are paying a premium for home loans because of the color of their skin,” said Hilary Shelton, director of the NAACP’s Washington bureau.
The racial homeowning gap has been the subject of debate in the U.S. for years, and this study simply adds more fuel to the fire. Last fall, the Federal Reserve said it identified about 200 lenders whose records showed possible discrimination. Regulators said they would look more closely at those lenders.
The Center for Responsible Lending’s data did not include all the factors used by lenders in determining home loan rates and eligibility, such as a borrower’s total debt. Conclusions are, therefore, incomplete to a large degree. Doug Duncan of the Mortgage Bankers Association also questioned the ability of any study to prove discrimination on a national level, which would require analysis of specific lenders.
In August, the Charlotte Observer reported that blacks who took out mortgages from 25 of the nation’s largest lenders were four times more likely than whites to pay high home loan rates. Even blacks with incomes above $100,000 a year were charged high rates more often than whites with incomes below $40,000, the newspaper found.
