Blacks pay higher mortgage loan rates, study shows

CHARLOTTE, N.C. – Blacks who bought homes in communities across America last year were four times as likely as whites to get charged high interest rates for mortgage loans, according to a Charlotte Observer analysis of records from 25 of the nation’s largest lenders.

Even blacks with incomes above $100,000 a year paid high rates more often than whites with incomes below $40,000.

For decades, African Americans struggled to get loans at any price. Lenders ignored entire black neighborhoods, a practice called redlining.

Last year, the nation’s 10 largest banks denied black applicants twice as often as whites. And on average they made only 5 percent of their home loans to blacks.

A new group of companies has filled the void. These “subprime” lenders, companies such as Ameriquest and New Century, charge higher interest rates than banks.

The result: In 2004, blacks received twice as many home purchase loans as a decade ago. But one in every four is paying a steep price.

A high-rate loan requires a borrower to pay tens of thousands of dollars in additional interest, while building less equity. Borrowers fail to repay these loans far more often, losing their homes and ruining their credit. Each foreclosure also damages a neighborhood.

Experts, studies and the Observer’s analysis point to three reasons why blacks get fewer low-rate loans:

•Discrimination can occur throughout the lending process.

•Blacks on average have less wealth and more credit problems.

•And blacks on average are less knowledgeable about the home-buying process.

Lenders say the availability of loans to blacks, even at high rates, constitutes progress.

Critics, however, say the industry is simply discriminating in a new way.

“Now what we have is reverse redlining,” said Mal Maynard, director of the Financial Protection Law Center in Wilmington, N.C., which studies lending patterns. Lenders are targeting black neighborhoods for the sale of high-rate loans, he said.

Federal studies of the lending industry, and federal lawsuits, have repeatedly found evidence of discrimination in the lending process.

In 2003, to mark the 35th anniversary of the Fair Housing Act that made discrimination in lending illegal, President Bush pledged $50 million to fight ongoing abuses. He cited a 2002 study by the Department of Housing and Urban Development that showed minorities get less information, less assistance and less favorable terms from mortgage lenders.

“Prejudice and discriminatory practices in housing still exist in America,” Bush said. “These practices are wrong.”

Since 1989, the federal government has required lenders to report the race of borrowers under the Home Mortgage Disclosure Act. Now for the first time, the Federal Reserve Board is requiring lenders to disclose which loans carry a high rate.

The board wants to see “if, in fact, differences in rates are truly driven by differences in risks and costs and not tainted by discrimination,” chairman Alan Greenspan told a bankers convention in March.

In advance of the report, the Observer analyzed data obtained from 25 of the nation’s largest lenders. Those 25 lenders make about half the home purchase loans in America – about 2 million in 2004.

Fewer than 1 in 10 borrowers got a high rate. In 2004, interest rates of about 8 percent and higher were considered high rates under a federal standard.

Lenders charged a high rate to 27 percent of black borrowers, 14 percent of Hispanic borrowers and 6 percent of whites.

A borrower’s income did not explain the disparities, the Observer’s study showed.

Blacks got high-rate loans much more often than whites with similar and smaller incomes.

The gaps increased with income. Among lower-income families, blacks received high-rate loans 3.3 times more often than whites. Among higher-income families, blacks received high rates 4.8 times more often.

Higher-income blacks living in white communities got high rates much more often than their white neighbors.