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Discrimination in the Mortgage Loans Sector |
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According to a consumer advocacy group's
analysis of new data from 15 national mortgage loans lenders, about 29% of African Americans who buy or refinance homes end up with high-cost
mortgage loans. In comparison, only 10% of white Americans end up with high-cost mortgage loans. Also, about 15% of Hispanics receive mortgage loans offered to borrowers with damaged credit, known as sub-prime loans. This study has revealed the presence of racial discrimination in the world of finance as well. But, not all the news is bad. The good news is that access to credit is more available in the home mortgage market. But it is being offered in a disproportionately unfair way. The existence of racial discrimination in the field of finance has been mentioned before. Advocacy groups have contended that minorities and women pay disproportionately more for credit. These figures are available because the federal banking regulatory agencies, for the first time, require home-mortgage loans lenders to provide information about higher-than-average loan rates and data that can be correlated with the race and sex of borrowers. Lenders are required to report the information, if a borrower paid a rate, at least 3 percentage points above the rate for Treasury securities of similar loan duration. This information is required under the Home Mortgage Disclosure Act. This act was formulated in 1975, to track patterns of mortgage loans lending, when many minorities and women were routinely denied loans of any kind. The new requirements however are part of a 2002 amendment. In the past, mortgage loans lenders have opposed efforts to add credit scores to the federally required data. Their excuse was that the obligation would pose an additional regulatory burden and potentially invade the privacy of borrowers. However, the coalition obtained the data for their study, from 15 large mortgage loans lenders. The coalition's analysis includes reviews of 4.6 million prime loans and 649,000 sub-prime conventional loans. The coalition says that its analysis corroborates its long-held belief that mortgage loans lenders discriminate. Lenders say the new information does not provide a complete picture of the loan-making process. They don't dispute that there are disparities based on race and sex. But they argue that mortgage loans borrowers pay higher rates if they pose a higher credit risk, for a variety of reasons, such as low income, poor neighborhood, bad credit history or low down payment. Borrowers with poor credit, bad payment records or those who live in troubled neighborhoods with high foreclosure rates and falling home values are riskier customers. As a result, they say, they are forced to charge more money, to compensate for the higher risk. But, usually such risk is measured by credit scores. Instead, lenders have created types of mortgage loans that respond to risk and create risk. At a conference on consumer lending issues held in Washington, the Federal Reserve Chairman actually defended the higher interest rates paid by some consumers as a positive development. He was of the opinion that these people are at least receiving mortgage loans. So, where once-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and price it appropriately. These improvements have led to rapid growth in sub-prime mortgage loans lending, and increased the costs of mortgage loans for consumers. People are divided over the issue. On one hand there are lenders who state that their data has been misinterpreted. On the other, there are people like Steve, a professor of real estate, who believe that the national analysis of mortgage loans terms in relation to race and sex agrees with other studies. |
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