Loans for Minorities Still More Costly
From News Services
Thursday, September 13, 2007
Applicants for home mortgages were turned down for loans at a slightly higher rate in 2006 than the previous year, and significant disparities continued to exist between white and minority applicants, the government reported yesterday.
In their annual look at mortgage practices among the nation's lending institutions, government regulators found the denial rate for all home loans was 29 percent last year, up from 27 percent in 2005.
The report, released yesterday by the Federal Reserve and other regulators, found minorities received loans with higher interest rates or other increased charges in greater percentages than white applicants did. Controlling for various factors, the report found 30.3 percent of the loans for home purchases by African Americans were higher-cost loans, compared with 17.7 percent of loans for whites. The gap of 12.6 percentage points exceeded the gap of 10 percentage points found in the 2005 survey.
Black borrowers received high-cost loans 52.8 percent of the time when they refinanced home loans last year, vs. 49.3 percent in 2005, the Fed report said. Hispanic borrowers received high-cost refinancings 37.7 percent of the time, up from 33.8 percent in 2005. The rate for white borrowers was 25.7 percent last year, compared with 21 percent 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 coincides with increased scrutiny by Congress of lending practices that contributed to the collapse of the subprime-mortgage market and caused volatility in the credit markets in recent weeks. African Americans' homeownership fell nearly two percentage points in the first six months of this year, to 46.3 percent, compared with a half-percentage point drop for whites, to 75.4 percent.
"Differences by race and ethnicity remain stubborn, persistent and significant," said Josh Silver, a vice president of research and policy at the National Community Reinvestment Coalition in Washington. "The differences are not narrowing. With all increased attention, why isn't it?"
The Fed economists writing the study cautioned that credit histories, loan-to-value and debt-to-income ratios may 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, a partner at 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 of how credit is distributed in some neighborhoods. The Department of Housing and Urban Development created a division in July to handle what officials described as a "record number" of investigations into discriminatory lending.
The new figures are in line with trends bank regulators have noted since they began publishing information on the demography of high-cost loans in 2004.
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