African-American and Hispanic home buyers pay higher interest rates than whites with similar credit ratings, according to a new study from the Center for Responsible Lending. The lenders in the fast-growing market for subprime mortgages claim they charge more because African-Americans and Hispanics have shakier credit histories, which makes lending to them riskier. But, the study shows that explanation is simply wrong. Debby Gruenstein Bocian, a researcher at the Center for Responsible Lending, says:
When we compare the borrowers with the same risk characteristics, African Americans and Latinos were still more likely to get higher-rate loans.
In the most extensive study of its kind, CRL found that African-Americans and Latinos are almost a third more likely to get a high-priced loan than white borrowers with the same credit scores. Racial disparities in mortgage lending have been studied and debated for decades, with the focus shifting in recent years from the practice of denying mortgages in certain minority neighborhoods, or redlining, and a lack of loans for minorities to the pitfalls of the subprime industry. As many as one in five home loans are now subprime, totaling more than $500 billion a year.
In response to earlier studies in racial disparities, the mortgage industry has argued that the varied financial backgrounds of the borrowers and a tendency for minority buyers to offer low down payments were mainly responsible. The authors of the new report said they had, for the first time, taken credit scores and down payments into account, leaving an unexplained racial difference. At press time, a House sub-committee was discussing whether to pass a weak bill favored by the industry or strong protections pushed by consumer groups that would stop predatory lending practices like this in the subprime mortgage market. It’s in the market where folks with blemished credit borrow. It’s also where most mortgage abuses occur and that’s most unfortunate.
Source: Center for Responsible Lending and The New York Times.
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