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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.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.