Higher income doesn’t protect blacks and hispanics from bias in lending

According to a new study by the National Community Reinvestment Coalition, higher income does not protect Blacks and Hispanics from receiving mortgage loans with above-market rates. The study, which analyzed nationwide Federal Reserve mortgage data for the most recent year available (2005), also found that Asian Americans received sub prime mortgages at a much lower rate than Blacks and Hispanics.

The study analyzed 2.3 million high-cost loans in 380 metro areas using the Fed’s definition of high cost loans (loans whose rates are at least three percentage points above Treasury securities), which includes most subprime loans given to individuals with poor and/or weak credit records.

The report, released last week, concludes that in 2005 Blacks in 171 metropolitan areas were more than twice as likely as whites to receive subprime mortgage loans. It also found that this lending disparity between Blacks and Whites was more severe at higher income levels, although the lending disparity exists at all income levels between Whites and Blacks.

Here are some of the key findings of the report:

• Middle class and upper income Blacks in 167 metropolitan areas were twice as likely as Whites with similar incomes to receive loans with high rates. There were only 70 metropolitan areas where low-income blacks faced a similar likelihood of receiving above-market rates.
• Hispanics in 75 metro areas were at least twice as likely as whites with comparable incomes to sign up for high cost loans, compared with only 10 metro areas for low-income Hispanics.
• Low-income Blacks in all areas were more likely to have pricey loans than Whites with similar incomes.
• Asian Americans and Whites had much smaller lending disparities as compared to the disparities between Blacks, Hispanics, and Whites.
• The worst lending disparities between Whites, Blacks, and Hispanics occurred in Charleston, South Carolina; Bridgeport, Connecticut; Omaha, Nebraska; Milwaukee, Wisconsin; and Springfield, Massachusetts.

What the report does not indicate is the race or ethnicity of the individual or individuals who gave their seal of approval to each of the loans that were analyzed, nor does it indicate specific metrics that are used to determine mortgage interest rates.

It would be interesting to find out the race and ethnicity of the lenders to see if these lending practices are conclusive cases of racial/ethnic discriminatory lending practices. I would also like to see if some of the metrics they use to qualify individuals for loans to determine whether lenders are using metrics that may inadvertently and unfairly target minorities for high interest rate mortgage loans.

On the surface, the study seems to clearly indicate consistent discrimination and predatory lending against minorities. One would think that when lenders compare income, credit rating, and job stability across the racial and ethnic lines in lending, individuals with similar marks should get the same types of loans.

I think that researchers should delve more into the way that lenders determine who receives subprime loans to see what we can do to modify the system so that it treats all mortgage loan applicants fairly and equally.