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|Posted September 14, 2005|
By Edmund L. Andrews
WASHINGTON, Sept. 13 - Regardless of income levels, blacks were about three times as likely as whites to borrow through more expensive "subprime" mortgages last year, according to a nationwide lending survey released Tuesday by the Federal Reserve.
The new report, based on data collected from 8,853 lenders, is the Fed's first attempt to look for evidence of racial and ethnic discrimination in the booming business in exotic mortgages and subprime lending.
Among low-income homebuyers, about 39.2 percent of blacks but only 12.9 percent of whites took out high-priced mortgages, which the Fed defined as loans with interest rates about 2 percentage points higher than those for "prime" customers with good credit.
|The Federal Reserve seeks evidence of discrimination.|
For buyers of a $200,000 house last year, that would have meant about $3,000 extra in annual interest payments.
In its report, the Fed cautioned that its study included no data on the credit ratings of individual borrowers, which greatly affects the rates they must pay. The Fed also said that part of the gap could be explained by differences in the kinds of mortgages that people used and by differences among lenders.
But even after adjusting for those differences, blacks were nearly twice as likely as whites at every income level to take out expensive mortgages.
Douglas Duncan, chief economist for the Mortgage Bankers Association in Washington, said the Fed's report showed little evidence of racial or ethnic discrimination.
"To us, it seemed they were saying you could explain the majority of differences," Mr. Duncan said. "You would expect to see higher-priced loans in higher-priced categories."
But Dean Baker, co-director of the Center for Economic Policy Research in Washington, said this merely pointed to a larger issue: "The discrimination is about why you end up going to a subprime lender in the first place," Mr. Baker said.
"It is striking to see such a difference" between members of minority groups and whites, Mr. Baker said. "What it shows is that blacks and Hispanics are paying a lot more for mortgages than whites who appear to be comparably situated." Under a longstanding mandate from Congress, the Federal Reserve has for years analyzed the rates at which people in different ethnic groups were being denied mortgage loans.
But that measure had become increasingly dated as banks and other mortgage lenders developed a kaleidoscope of high-cost subprime mortgages for people who would have simply been rejected outright in the past on the basis of poor credit or insufficient income.
Subprime mortgages, almost nonexistent 10 years ago, accounted for more than 10 percent of all new home mortgages last year; analysts say they are a major reason that homeownership rates have climbed sharply among African-Americans and Hispanics.
The new study raised but did not answer the question of why blacks, and to a lesser extent Hispanics, have been induced to pay higher rates.
Even among high-income borrowers, which the Fed defined as people who earned more than 120 percent of the median income in their area, blacks and Hispanics were far more likely to take out high-cost mortgages.
Among higher-income borrowers, 23.9 percent of blacks took out high-cost mortgages, compared to 17.4 percent of high-income Hispanics and 5.8 percent of whites.
Asian-Americans, by contrast, were less likely on average than whites to take out high-cost loans.
In its study, the Fed said that a large part of the contrast between mortgages to blacks and whites could be attributed to differences in lending institutions.
Put another way, the gap between blacks and whites who borrowed from the same lenders was much smaller that the overall gap between blacks and whites.
According to the Fed's data, the vast bulk of high-priced subprime lending was handled by a small number of institutions. Of the 8,800 mortgage lenders that provided data, only 500 said they had made more than 100 subprime loans last year. Ten lenders accounted for 38 percent of all the loans that were made.
The Fed study could provide new ammunition to critics of subprime lenders who accuse such institutions of predatory lending practices.
In addition to paying much higher interest rates than "prime" borrowers with strong credit, subprime customers are often locked into their mortgages for three to five years and forced to pay big penalties if they try to refinance with a cheaper mortgage.
In an attempt to shed more light on the issue of discrimination, Fed researchers delved into data from eight major subprime mortgage lenders that was collected by Georgetown University's Credit Research Center.
Copyright 2005 The New York Times Company. Reprinted from The New York Times, Business Day, of Wednesday, September 14, 2005.
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