Blacks pay higher interest on mortgages from subprime lenders: study

Jet, June 19, 2006

Homebuyers who may not qualify for regular mortgages due to blemished credit or other reasons have been able to obtain higher interest rate mortgages through the subprime industry, which is a fast-growing market. However, when Blacks go these subprime lenders-companies that charge higher interest rates than banks--they are still 30 percent more likely to pay higher mortgage rates than White borrowers with similar credit ratings and income levels, an advocacy group recently found in its statistical study.

The Center for Responsible Lending, a non-profit research organization, said either loan sellers are charging higher rates to the Black and Hispanic customers or those borrowers are being steered to loan sellers that specialize in higher rates, forcing the homebuyer to pay hundreds of dollars extra per month.

Using an industry database, the Durham-based nonprofit center compared credit scores, down payments and other financial information on about 177,000 loans made in 2004 by subprime lenders, who provided the borrowers' income and race.

"African-Americans and Latinos are paying a premium for home loans because of the color of their skin," said Hilary Shelton, director of the NAACP's Washington, D.C., bureau.

Doug Duncan of the Mortgage Bankers Association pointed out that the center's data did not include all the factors used by lenders, such as a borrower's total debts, making the study's conclusions incomplete. He also questioned the ability of any national study to prove discrimination, which would require an analysis of specific lenders.

The Charlotte Observer reported in August that Blacks who borrowed from 25 of the nation's largest lenders were four times more likely than Whites to pay high rates. Even Blacks with incomes above $100,000 a year were charged high rates more often than Whites with incomes below $40,000, the newspaper found.