Minorities unfairly pay more for mortgages, study says - MarketWatch

Minorities unfairly pay more for mortgages, study says - MarketWatch: "Trade group challenges study's findings; credit quality at issue" | By Amy Hoak, MarketWatch | Last Update: 6:02 PM ET May 31, 2006

CHICAGO (MarketWatch) -- African-Americans and Latinos enter into high-priced, subprime mortgages more often than white borrowers with identical credit qualifications, according to a study by the Center for Responsible Lending.

The report, released Wednesday, examined 50,000 subprime loans using data collected under the Home Mortgage Disclosure Act and supplemented with the Loan Performance Subprime Asset-Backed Securities Database. The two sources were used to isolate borrowers' race and ethnicity from all other risk factors, the report's author said.

"For many types of loans, borrowers of color in our database were more than 30% more likely to receive a higher-rate loan than white borrowers, even after accounting for differences in risk," according to the report.

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When 2004 HMDA data was first released, it showed blacks and Hispanics were more likely to end up in the high-cost subprime market than whites. But the government said the statistics couldn't be taken as "evidence of bias in lending decisions," Armstrong said.

Lenders argued minority borrowers tend to be less affluent, have weaker credit histories and make smaller down payments, said Debbie Bocian, senior researcher for the Center for Responsible Lending.

"We weren't convinced. Our organization was created to fight predatory lending, and we wanted to make sure that borrowers of all races and ethnicities had fair access to home financing," Bocian said in a statement.

"So, we supplemented the 2004 HMDA data with information from a proprietary loan-level database that contains critical information on the risk profiles of its loans," she said. "We looked at a large national sample of loans -- about 50,000 subprime mortgages in all."

According to the study, African-American borrowers were more likely to receive higher-rate home purchase and refinance loans than white borrowers with similar qualifications. Those with prepayment penalties on their subprime home loans were 6% to 34% more likely to receive a higher-rate loan than white borrowers.

Latino borrowers purchasing homes were 29% to 142% more likely to receive a higher-rate loan than non-Latino, white borrowers with similar qualifications, the study concluded. ...