Costs higher for minority borrowers

From Bloomberg News

Minority borrowers received higher-cost mortgages more frequently than whites when they refinanced their homes last year, continuing a trend of racial disparities in home-loan rates, the Federal Reserve said Wednesday.

African Americans received high-cost loans 52.8% of the time when they refinanced home loans last year, versus 49.3% in 2005, the Fed said in a report. Latino borrowers received high-cost refinancings 37.7% of the time, up from 33.8% in 2005. The rate for white borrowers was 25.7% last year, compared with 21% in 2005.

“The incidence of higher-priced lending for blacks and Hispanic white borrowers is notably greater than for non-Hispanic whites,” the Fed said in the report. “Similar patterns are shown in racial and ethnic differences in denial rates.”

The report’s release coincided with increased scrutiny in Congress of lending practices that contributed to the collapse of the sub-prime mortgage market and prompted credit-market volatility in recent weeks. African American homeownership fell nearly 2 percentage points in the first six months of this year to 46.3%, compared with a half-percentage-point drop for whites, to 75.4%.

The report indicated little change in the percentage of minority homeowners who relied on expensive mortgage credit. Black borrowers had high-cost loans 53.7% of the time last year, versus 54.7% in 2005. For Latino borrowers, it was 46.6% last year versus 46.1% in 2005. Those figures weren’t adjusted for loan size, borrower’s income or geographic location.


“Differences by race and ethnicity remain stubborn, persistent and significant,” said Josh Silver, vice president of research and policy at the National Community Reinvestment Coalition in Washington. “The differences are not narrowing. With all the increased attention, why isn’t it?”

The Fed economists who wrote the study cautioned that credit histories, loan-to-value and debt-to-income ratios could also explain the racial disparities. Their analysis of high-cost loans does not include this information.

“As in past years, the Federal Reserve’s report is of limited utility in determining whether there are true disparities because it doesn’t have information about credit scores, which are the most significant explanatory variable in loan pricing,” said Andrew Sandler of Skadden, Arps, Slate, Meagher & Flom in Washington, who leads the firm’s consumer financial services enforcement and litigation practice.

Still, regulators have acknowledged that the data are disturbing and point to problems with the availability of credit in some neighborhoods. The U.S. Department of Housing and Urban Development created a new division in July to handle what officials called a record number of investigations into discriminatory lending.