Saturday, September 19, 2009
During the rush earlier this decade by banks to give out mortgages, a disproportionate amount of expensive loans were distributed to minorities, including to those whose income levels should have qualified them for better rates. A high-priced loan is defined by the Federal Reserve as one with an annual percentage rate at least three points higher than a Treasury Department security. The findings, contained in a new report by the Center for American Progress, showed that African-Americans received more than 40% of higher-priced mortgages, Hispanics 31%, Caucasians 17.8%, and Asians 11.5%.
The report’s authors recognized that “valid underwriting criteria would lead institutions to offer higher interest rates to riskier borrowers. But that leads to the question of whether low-risk borrowers were also driven toward higher-priced mortgages.”
Data collected revealed that 14.1% of homeowners in 2006 making more than twice their area’s median income—mostly in the six-figure range—were given higher-priced mortgages. This statistic led researchers to question the validity of giving out so many costly loans to minorities. In 2006, high-income borrowers who were African American were three times as likely as Caucasians to receive pricey loans—32.1% compared to 10.5%. The rate for high-income Hispanics was nearly as high as that of African Americans, 29.1%.
-Noel Brinkerhoff
Unequal Opportunity Lenders? Analyzing Racial Disparities in Big Banks’ Higher-Priced Lending (by Andrew Jakabovics and Jeff Chapman, Center for American Progress) (PDF)
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