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Racism In Lending Mortgage Loans |
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A very disturbing trend has been noticed in a consumer advocacy group's analysis of new data from 15 national mortgage loans lenders. It has been found that about 29% of African Americans who buy or refinance homes end up with high-cost mortgage loans, whereas a mere 10% of white Americans end up with high-cost
mortgage loans. Racial discrimination in the world of finance has been revealed by the above study. It has also been found that about 15% of Hispanics receive mortgage loans offered to borrowers with damaged credit, known as sub-prime loans. However, there is a silver lining also to these dark clouds. The home mortgage market is offering greater access to credit but in a disproportionately unfair way. It has been contended by advocacy groups that minorities and women pay disproportionately more for credit. It has now become possible to assess the extent of racial discrimination based on these figures as 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. If a borrower has paid at least 3 percentage points more than the rate for treasury securities of the same loan term, it is obligatory for lenders to report such information, under the Home Mortgage Disclosure Act, was enacted in 1975. This new requirement is part of a 2002 amendment and was formulated to track patterns of mortgage loans lending, when many minorities and women were routinely denied loans of any kind. About 4.6 million prime loans and 649,000 sub-prime conventional loans were analyzed by obtaining data from 15 large mortgage loans lenders and this analysis proved beyond any doubt that mortgage loans lenders discriminate. This analysis was done despite the efforts of the mortgage loans lenders to prevent addition of credit scores to the federally required data, while making the excuse that this obligation would pose an additional regulatory burden and potentially invade the privacy of borrowers. The mortgage loans lenders maintain that this analysis does not depict the entire loan-making scenario as the rate being paid by a mortgage loans borrower is mainly dependent on the risk factor posed by him. The risk factor increases with the poor credit rating of the borrower, his bad payment records or if he lives in a troubled neighborhood with high foreclosure rates and falling home values. The other factors that determine the rate are low income, poor neighborhood, bad credit history or low down payment. As such, they say that because of the higher risk factor in certain cases, they have no way but to charge higher rates. However, the mortgage loans lenders do not dispute that race and sex are also responsible for disparities. A credit score is a very good indicator of the risk factor but lenders have devised their own mortgage loans that respond to risk and create risk. The Federal Reserve Chairman, at a conference on consumer lending issues held in Washington, maintained that the higher interest rates paid by some consumers are a positive development. He opined that at least these people are not being denied mortgage loans. This development is now enabling lenders to judiciously assess the risk posed by individual applicants and determine the rates for the loans, whereas such borrowers would have simply been denied credit, in the past. Sub-prime mortgage loans lending has had a very rapid growth due to these improvements but this has also led to heightened costs of mortgage loans for consumers. There are diverse opinions about the above issue as one group of lenders believes that their data has been misinterpreted. There are other groups of lenders 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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