Minorities Face Mortgages Discrimination

This Bloomberg story, which cites a newly-released Fed report that says that minorities are denied loans more often than Caucasians and often pay higher rates, isn’t a surprise. If anything, what is surprising is first, that this is treated as news, and second (and related), that the Fed and other regulators have been slow to address the problem.

The general topic of discriminatory lending and regulatory indifference will come into sharper focus as foreclosures start hitting minorities disproportionately.

From Bloomberg:

Minority borrowers received higher- cost mortgages more frequently than whites last year and were denied loans more often, the U.S. Federal Reserve said in an analysis of 2006 lending practices.

“The incidence of higher-priced lending for blacks and Hispanic white borrowers is notably greater than for non-Hispanic whites,” the Federal Reserve said in a staff study on the data released today. “Similar patterns are shown in racial and ethnic differences in denial rates.”

The report’s release coincides with increased scrutiny in Congress of lending practices that contributed to the collapse of the subprime-mortgage market and prompted credit-market volatility in recent weeks. The number of Americans who may lose their homes because they couldn’t make payments reached a record in the second quarter, the Mortgage Bankers Association said in a survey released Sept. 6.

Fed economists said discriminatory practices by financial companies and banks were a possible explanation for differences in white and minority lending patterns. They cautioned that credit histories, loan-to-value and debt-to-income ratios may also be factors.

The data is largely in line with trends bank regulators have noted since they began publishing information on the demography of high-cost loans in 2004. Consumer advocates say that fact alone is disturbing because the publishing the data was supposed to narrow racial disparities.

Black borrowers had high-cost loans 53.7 percent of the time last year, versus 54.7 percent in 2005, the report said. For Hispanic borrowers, it was 46.6 percent last year versus 46.1 percent in 2005. Those figures aren’t adjusted for loan size, borrower’s income or geographic location.

“Differences by race and ethnicity remain stubborn, persistent, and significant,” said Josh Silver, a vice president of research and policy at the National Community Reinvestment Coalition in Washington. “The differences are not narrowing. With all increased attention, why isn’t it?”

Consumer advocates say that blacks and Hispanics will be hurt most by the surging foreclosure and delinquency rates on subprime mortgages, those with higher rates made to borrowers with weak credit or high debt. Fed data gathered since 2004 showed a higher rate of high-cost loans among these groups.

Homeownership rates were lowest among blacks in the second quarter of 2007 at 46.3 percent, compared with 50.0 percent among Hispanics and 75.4 percent among whites, according to U.S. Census Bureau data.

The Fed findings follow a July report that the central bank would refer five lending-discrimination cases to the Justice Department for investigation during the first half of 2007, up from two cases in all of 2006.

All U.S. bank regulators have independent enforcement authority to censure banks for unfair lending practices.

Since the data on race and high-cost loans became available in 2004, the Fed hasn’t brought a case against any of the 901 banks it supervises. Fed officials say independent action could jeopardize the Justice Department’s investigations.

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  1. Anonymous

    “The differences are not narrowing. With all increased attention, why isn’t it?”

    What in the world has “attention” got to do with risk? This seems to be a comment by someone with a permanent ax to grind, rather than a person with any real interest in cause-and-effect.

    Ironically, it will turn out that a significant number of people who were turned down for loans in the past 2-3 years will be very happy that it happened, once they set aside their righteous indignation and look at current housing price movement and the rapid onset of negative-equity.

    As for making me believe that for-profit lenders routinely turn down otherwise-equally qualified borrowers solely because of the color of their skin, I’d like to see a lot of facts to support that before I’ll believe it. Stupid business practices generally do not reward the practitioner with longevity.


  2. Yves Smith


    I am not going to go to the trouble of tracking this down, but discrimination against minorities has been proven again and again in multiple arenas. On the lending front, it has shown up in large scale analyses (yes, adjusted for things like income level, work history, and credit score) and has also repeatedly been proven experimentally (white and minority “mystery shoppers” will go to banks, present the same credit history, and see what terms they are offered). It has been repeatedly demonstrated that on average minorities are offered worse deals, and not a little worse either.

    These sort of studies are regularly reported in the press, If you haven’t seen them, it’s because you choose to read past them.

    I don’t see why it is so hard for you to accept that prejudice is deeply rooted. Until Germany required that competition for orchestra positions be blind (ie, the performer is behind a screen, so the listeners hear only the music) women were never hired by orchestras. They now win positions at the same rate as men. There is also a good bit of work on unconscious bias, such as Harvard’s Project Implicit.

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