By Sandra Fleishman
Washington Post Staff Writer
Thursday, December 11, 2003; Page E03

People who live in neighborhoods with predominantly black or elderly populations pay more for mortgages than borrowers in other neighborhoods, regardless of their creditworthiness or the condition of their houses, according to a study released yesterday.

The study by the District-based National Community Reinvestment Coalition, an association of community-based advocacy groups, "shows clearly that two banking systems exist in America," said John E. Taylor, the group's president and chief executive. "If you live in a white neighborhood, you will get a market-rate loan. If you live in a predominantly minority or elderly neighborhood, you will get a high-cost loan."

The study is the latest of many over the years that find continuing discrimination in mortgage lending even though government regulators and lending groups have pledged to eliminate it. But Taylor said the analysis is "unique" because it takes into account borrowers' credit histories, something that lenders have said previous studies alleging discrimination failed to consider.

Taylor, backed by groups including the NAACP, the National Council of La Raza, AARP, the Consumer Federation of America and the U.S. Conference of Mayors, called on regulators and lenders to discourage the steering of borrowers to higher-cost loans and to encourage full-service banks in minority neighborhoods.

Douglas G. Duncan, senior vice president and chief economist for the Mortgage Bankers Association in Washington, questioned the study's methodology and data. "If this study were put out in the academic community it would not stand the test of academic peer review," he said.

A.W. Pickel III, president of the McLean-based National Association of Mortgage Brokers, said, "I won't deny that there are abuses that take place," but he noted that association members "subscribe to a code of ethics that specifically states that they won't discriminate."

Coalition officials said yesterday that the study was academically reviewed and that it is consistent with a smaller study done last year by a Federal Reserve economist and two University of Pennsylvania researchers.

Because the study includes credit data, Taylor said, it "debunks one of the major arguments that lenders make against charges of bias -- that they are using a credit scoring system that is colorblind."

The study used credit information obtained from a large credit-reporting bureau. "After controlling for risk, controlling for credit history and controlling for housing stock, in nine of 10 cities, African Americans ended up with a subprime loan" to refinance homes, Taylor said. A subprime loan, usually marketed to people with imperfect credit histories, carries a higher interest rate than a prime loan. A similar pattern was found on mortgage loans in six of the 10 cities. Subprime lending also increased when the proportion of residents older than 65 increased, according to the study.

The 10 metropolitan areas in the study were Atlanta, Baltimore, Cleveland, Detroit, Houston, Los Angeles, Milwaukee, New York, St. Louis and Washington.

"The least amount of disparate treatment between African Americans and whites was in D.C.," Taylor said.