It's well known that African Americans and Latinos are more likely to pay higher rates for subprime home loans than white borrowers. For years, lenders have said the disparities are all attributable to differences in credit scores and other qualifications.
We weren't convinced.
Researchers at the Center for Responsible Lending gathered more complete loan data to isolate the effects of race and ethnicity on the price of subprime home loans. The results are clear and compelling. Even when controlling for credit scores and other risk factors, we found that African Americans and Latinos are much more likely to get a higher-rate subprime loan than white borrowers with the same qualifications. Commonly, borrowers of color are 30 percent more likely to get the most expensive loans.
While the research results are particularly disturbing for African Americans and Latinos, all borrowers may be at risk of financial harm from some of the subprime market's common business practices, such as discretionary pricing and "yield-spread premiums," which reward mortgage brokers for steering borrowers into unnecessarily expensive home loans.
To get a complete copy of the study, Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages, and to learn more about policies that would encourage fair lending for all borrowers, please go to http://www.responsiblelending.org/reports/HMDA2006.cfm.
About the Center for Responsible Lending
The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development lenders.