Racial disparities persist in refinancing

WASHINGTON — Black and Hispanic homeowners were more likely to receive refinancing loans aimed at borrowers with low credit ratings than were whites, according to a nationwide study released Wednesday by the Consumer Federation of America.

In a survey of nearly 5 million refinanced mortgages made by 30 lenders nationwide, the consumer advocacy group found that about half of black mortgage seekers and one third of Hispanics got loans with subprime rates, compared to less than a quarter of white borrowers.

Subprime loans carry an interest rate below the prime rate, or benchmark interest rate set by the U.S. Federal Reserve, that is almost always adjustable and made to borrowers with low credit ratings. Rates on subprime adjustable-rate refinanced mortgages rise sharply as market rates increase, generally making it harder for borrowers to repay.

“Some of the differences in lending we saw are undoubtedly due to risk-based pricing, but the variation is too great to be explained by risk factors alone,” said Patrick Woodhall, senior researcher with Consumer Federation of America.

The 300-city study also looked at regional differences in lending practices. More than 36 percent of mortgage refinancings were made at subprime rates in the Southwest and Great Plains states versus more than 18 percent in the Pacific and Northwest states. The group studied mortgages reported by 30 lenders, including market leaders Countrywide Financial Corp., National City Corp. and New Century Financial Corp.