Minorities Often Pay More for Mortgages
Wednesday, September 14, 2005
Blacks and Hispanics are getting a disproportionate share of high-cost mortgages compared with whites, according to new federal figures released yesterday.
The analysis of 2004 home-lending data shows that even after adjusting for factors such as income level, loan size and property location that could raise the interest rate offered on a mortgage, blacks are still nearly twice as likely as whites to be given a high-cost loan.
Researchers at the Federal Reserve, who analyzed data that lenders nationwide were required to submit to regulators, said that despite the disparities, the availability of high-cost, risk-based mortgage loans broadens the availability of home financing.
The authors of the Fed report said such lending has "greatly expanded the availability of home loans to borrowers who, because of weaknesses in their credit profiles, had previously been unable to qualify."
This is the first year that lenders have been required to report data on high-priced loans to regulators under the Home Mortgage Disclosure Act. Consumer groups and regulators have become more concerned about high-cost, or subprime, loans because of their explosion in recent years. Subprime loans made up about 19 percent of all home-loan originations in 2004, up from less than 5 percent in 1994, according to estimates cited in the analysis.
The Fed report, a dense, 50-page statistical review of loans made last year by some 8,800 lenders, said the numbers do not necessarily indicate widespread discrimination.
"Our analysis strongly indicates that the raw data alone can lead to inaccurate conclusions, which in turn may be unfair to particular institutions and may lead to unnecessary restrictions on the availability of loans to less-creditworthy applicants," the Fed report said.
Yesterday's raw data show many minorities are more than two or three times as likely overall than whites to get what are deemed high-priced loans. About 32 percent of blacks and 20 percent of Hispanics took out high-cost conventional loans in 2004 to buy a home, compared with 9 percent of non-Hispanic whites, according to the Fed.
About 35 percent of blacks and 19 percent of Hispanics got high-cost refinance loans, compared with just under 13 percent of non-Hispanic whites, the analysis says.
The gaps narrow when the data are adjusted to reflect income, loan size and property location for loans to minority borrowers. The differences decline more when the data are adjusted to reflect that minority borrowers often turn to higher-priced lenders. With both those statistical adjustments, about 16 percent of blacks and 12 percent of Hispanics received high-priced home purchase loans, compared with 9 percent in the white control group.
Before and after the adjustments, Asians are less likely than whites to get high-priced loans.
The Federal Financial Institutions Examination Council, a government umbrella group for several agencies that oversee lenders, said the data will give the government a "useful screening tool" to identify institutions to examine more closely.
Consumer activist groups have long attacked lending patterns as discriminatory, while lenders have defended themselves. While both sides said they continued to review the analysis -- written in "Fed-speak," according to John Taylor, president of the National Community Reinvestment Coalition -- both also claimed evidence to support their arguments.
Taylor focused on language in the report that says that adjusting for variables is "insufficient to account fully for racial or ethnic differences in the incidence of higher-priced lending; significant differences remain unexplained."
He said, "I think the fairest statement you can make is that if you're a minority, you're twice as likely as a white to get a higher-cost loan."
The Mortgage Bankers Association, which plans to do its own analysis of the HMDA data, focused on the finding that more loans have become available to borrowers though higher-priced products and on the Fed's warning not to use the data to make "unwarranted accusations of illegal bias."
Said Doug Duncan, the association's chief economist: "The strongest thing in the summary was that only 2 percent of the 8,853 lenders covered by HMDA exhibited a statistically significant difference in the incidence of higher-priced loans" between black and Hispanic borrowers and non-Hispanic white borrowers, after adjusting for borrower income and other factors.
Wright Andrews, a lobbyist for the subprime industry, said the report "says essentially what the lenders had hoped it would say. It indicates there are disparities . . . but that is nothing new. It basically arises from the economic disparities in our society. Unfortunately a disproportionate number of blacks and Hispanics are economically disadvantaged, and that leads to differences in their credit and risk profiles."