Study: Bias plagues mortgage market
Center for Responsible Lending says borrowers of color are 30% more likely to receive higher rates for home loans than white borrowers.
NEW YORK (CNNMoney.com) - African-Americans and Latinos are 30 percent more likely to receive higher rates for home loans than white borrowers despite similar credit scores and risk factors, according to a study published Wednesday by The Center for Responsible Lending.
The Center for Responsible Lending's study found that African-Americans and Latinos face different levels of pricing disparities when compared with white borrowers. African-Americans were more at risk when the subprime mortgages included a prepayment penalty. African-American borrowers were 31 percent more likely to receive a higher rate on a subprime fixed home mortgage while they were 15 percent to 16 percent more likely to pay more to take out an adjustable rate mortgage.
African-Americans also faced pricing disparities when it came to refinancing their existing homes. Two-thirds of refinancing loans include prepayment penalties, putting African-Americans at a significant disadvantage to their white counterparts. The study found that lenders tended to offer African-American borrowers 34 percent higher rates on fixed-rate refinance loans and 17 percent higher on ARM refinance loans.
Similarly, Latinos were 45 percent more likely to receive a higher fixed loan rate if they were seeking a sub-prime loan and between 29 percent and 37 percent more likely to pay more for an ARM. The study didn't find any significant statistical disparity in receiving refinance loans.
The latest study follows in the wake of a Federal Reserve report last September that analyzed 2004 data provided by the Home Mortgage Disclosure Act (HMDA) and highlighted alleged discriminatory practices by around 200 lenders, including 100 banks. The study sparked outrage among minority advocates and propelled increased scrutiny of mortgage lenders by government agencies, such as the Department of Housing and Urban Development.
New York Attorney General Eliot Spitzer filed one of many lawsuits last year attempting to garner more information from the banking industry on its lending practices. That probe was temporarily derailed after the Office of the Comptroller of Currency and an industry group called the Clearing House Association sued Spitzer for overstepping his authority. A federal judge in New York last July refused to force banks to turn over their data.
Speaking on CRL's conference call to discuss the study's finding, Natalie Williams, chief of Spitzer's civil rights bureau, said the office will issue a brief to the Second Circuit Appeals Court in June arguing for disclosure of bank information. The brief will be in response to a recent filing by the OCC attempting to block Spitzer's appeal.
"We sincerely hope that the Office of the Comptroller of the Currency investigates loan pricing disparities at the banks it regulates with the same vigor with which it sought to stop our inquiries," she said, adding that the pricing disparities have a wide impact on the U.S. economy.
Hilary Shelton, director of the Washington bureau of the NAACP, said the unfair pricing disparities hinder economic growth for minorities by making it more difficult for minority families to purchase a home and start on the path to building personal wealth.
"When African-American and Latino families are steered into higher-cost loans, this path to security is made steeper," he said. "That means that it's even harder for families of color to build equity for their future. It's even harder to send their children to college and it's even harder to build wealth for the next generation."
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