WASHINGTON: A study by an advocacy group in the U.S. has brought out that African Americans and Hispanics are more likely to be charged with higher rates of interest for mortgages than white borrowers with similar qualifications and risks factors.
The Durham-based group, the Center for Responsible Lending, said it compared an industry database containing credit scores, down payments and other financial information on some 177,000 loans made by subprime lenders in 2004 and found that minorities were up to 34 per cent more likely to be charged a higher interest rate than whites with the same scores for income, credit history and property location.
"African Americans and Latinos are paying a premium for home loans because of the color of their skin," said Hilary Shelton, director of the group's Washington bureau.
The group said either loan sellers could be charging higher rates to these customers or these customers may be guided to loan sellers that specialize in higher rates. It said mortgage industry incentives known as yield spread premiums are also to be blamed because they encourage mortgage brokers to steer minority borrowers into higher cost loans when they could qualify for less expensive loans.
In 2004, the Federal Reserve Board had carried out a study among some 28.1 million loan seekers and found while non-whites paid higher mortgage rates, the gap narrowed when variables such as loan amount, borrower income and credit scores were taken into account.
The Center for Responsible Lending study focused on 50,000 loans in the subprime category of higher-risk borrowers. It supplemented the 2004 Federal Reserve Board data with loan-specific information provided by LoanPerformance, a San Francisco-based mortgage securitization data and analytics firm.
The group's researchers said there is clear evidence that African Americans were significantly more likely to be steered into loans containing penalties for early repayment, comprising more than 60 percent of loans examined.
A senior researcher of the group, Debbie Bocian, said it appears that unscrupulous mortgage brokers are receiving kickbacks from mortgage lenders in the form of yield-spread premiums, to promote such higher-rate loans.
A spokesperson for the mortgage banking industry rubbished the conclusion, saying the group did not consider all the legitimate questions like family wealth and debt, house appraisal and other factors that usually underwriters consider in determining the award of a loan.
Subprime loans can carry interest rates several percentage points above the going rate for mortgages made to the most-creditworthy borrowers. For example, a prime 30-year mortgage would carry an interest rate of 6.5 per cent while a subprime loan could run 10 per cent or more. In addition, subprime loans come with higher fees and more-restrictive terms.
