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September 11, 2006
Blacks and Hispanics Pay Higher Mortgage Rates
Not so long ago, the biggest problem for minority borrowers was "redlining"--banks' pernicious practice of refusing to lend money to people living in certain supposedly undesirable neighborhoods. These days, it's a lot easier for minorities to get a loan. But in many cases they're charged higher rates than whites.
How much of the interest-rate gap can be explained by discrimination or aggressive marketing of high-cost loans? How much can be attributed to legitimate differences in the characteristics of black and Hispanic borrowers vs. white borrowers? Blog readers are invited to weigh in. Meanwhile, here's what the Federal Reserve (pictured)
says in a study released on Friday.
Remarkably, the Fed found that in 2005, for conventional home-purchase loans, 54.7% of blacks and 46.1% of Hispanics paid high rates, vs. only 17.2% of non-Hispanic whites. (Asians, by the way, were even less likely than whites to pay high rates for loans.)
The Fed concludes that most of the gap can be explained by observable differences between borrowers, such as income and amount borrowed. That leaves about a 10 percentage-point difference between blacks and whites. The Fed says it's impossible to tell how much of the remaining difference is attributable to discrimination vs. unobserved differences between borrowers, such as overall debt-to-income ratios, credit history, and loan-to-value ratios. It says, unsatisfyingly, that "further research is needed." The trouble is that the Fed isn't empowered by Congress to collect the data on LTV ratios etc. that would enable it to detect discrimination. It's something people want to know.
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