CHARLOTTE, N.C. – Two Americans, one black and one white, apply for similar mortgage loans. They have similar incomes, similar credit scores. They intend to make similar down payments.

They would seem to be candidates for similar interest rates. But a national study released Wednesday concludes the black borrower is more likely to be charged a high rate.

A Hispanic borrower also was more likely than a comparable white to pay a high rate, the study found.

Consumer groups said the study by the Center for Responsible Lending offered the clearest evidence to date that minorities can face widespread discrimination when they shop for mortgage loans.

Lending trade groups said the study does not replicate the way lenders make decisions. They said race is not a factor in lending decisions, and that minorities are more likely to pay high rates because of economic disparities.

Advocates renewed calls for increased federal regulation of the mortgage industry.

“African Americans and Latinos are paying a premium for home loans because of the color of their skin,” said Hilary Shelton, director of the NAACP’s Washington bureau.

The study by CRL, a Durham, N.C., nonprofit that critiques the lending industry, is the latest effort to explain a new fact: Data released by lenders for the first time last year show minorities are more likely to pay high rates for mortgage loans.

Such loans require borrowers 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. Foreclosures also damage neighborhoods.

The Charlotte Observer reported in August that African Americans who borrowed from 25 of the nation’s largest lenders were four times more likely than whites to pay high rates. Even blacks with incomes above $100,000 a year were charged high rates more often than whites with incomes below $40,000, the report found.

Lenders say a borrower’s income is only one factor in lending decisions. Other important factors include the proposed down payment and the borrower’s credit history. Federal regulators did not require the release of that information, citing privacy concerns. While lenders said the information would help explain the disparities, they have not released it voluntarily.

So CRL bought an industry database containing credit scores, down payments and other financial information on about 177,000 loans made by subprime lenders in 2004. It combined that database with the information about income and race lenders had already released.

The center’s researchers reached a simple conclusion.

“The industry explanation was wrong,” said Debbie Bocian of CRL, the lead author. Controlling for all of those factors, blacks were still 29 percent more likely to pay a high interest rate on a fixed-rate home purchase loan.

CRL said there were two possible explanations. Individual loan sellers may be charging higher rates to their black customers. Or black customers may be steered to loan sellers that specialize in higher rates.


The Observer series found that several of the nation’s largest mortgage lenders now operate two businesses, one that makes market-rate loans and one that makes high-rate loans. The high-rate arm often makes most of the company’s loans to black borrowers. Lenders say they are simply meeting demand.

A number of lenders now promise that people who apply for a loan will receive the best rate the company offers, even if they apply at the store that specializes in high-rate loans. Advocates want to extend this practice, called objective pricing.

The CRL study also urges the federal government to require lenders to disclose additional information so their performance can be watched. And it asks the government to regulate more tightly the sale of loans by mortgage brokers. There is growing evidence that pricing disparities can result from giving brokers the power to adjust pricing to increase their own compensation.

Doug Duncan of the Mortgage Bankers Association said he was still reviewing the study. But he said CRL’s data still did not include all of the factors used by lenders, such as a borrower’s total debts, making the study’s conclusions incomplete. He also questioned the ability of any national study to prove discrimination, which would require an analysis of specific lenders.

The Federal Reserve Board said last fall it had identified about 200 lenders, using the new data, whose records showed possible discrimination. Regulators said they would look more closely at those lenders, but have since declined to comment.

(c) 2006, The Charlotte Observer (Charlotte, N.C.).

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Distributed by Knight Ridder/Tribune Information Services.

AP-NY-06-01-06 1644EDT

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