06 September 2005

Racial Discrimination in Mortgage Lending

Blacks and Hispanics are being steered towards subprime lenders who charge high interest rates on the basis of race, causing them to pay unnecessarily high interest rates far too often.

Even blacks with incomes above $100,000 a year were charged high rates more often than whites with incomes below $40,000. . . .

In 2004, interest rates of about 8 percent and higher were considered high rates under a federal standard.

Lenders charged a high rate to 27 percent of black borrowers, 14 percent of Hispanic borrowers and 6 percent of whites.

The pattern of disparities was similar in the Charlotte metropolitan area and across the Carolinas.

A borrower's income did not explain the disparities, the Observer's study showed. Blacks got high-rate loans much more often than whites with similar and smaller incomes.

The gaps increased with income. Among lower-income families, blacks received high-rate loans 3.3 times as often as whites. Among higher- income families, blacks received high rates 4.8 times as often.

Higher-income blacks living in white communities got high rates much more often than their white neighbors.

The print edition of the story in the Denver Post notes that the study referenced above closely confirms a prior Denver Post study of subprime lending patterns in Denver.

Lenders blame credit scores and down payment amounts, which, conveniently, they don't have to disclose (despite the fact that down payment amounts can easily be determined from matters in the public record and credit scores are available to any credit card company considering making an unsolicited credit offer that will end up in your junk mail), but it is hard to call that anything but bullshit. Blacks making $100,000 a year do not have much less money available for down payments and much worse credit on average than whites with incomes of less than $40,000. Even in the highly unlikely event that blacks making $100,000 a year had the same amount available for down payments and the same credit scores on average as whites with incomes of less than $40,000, they should still be entering into fewer subprime loans because they have higher incomes. Race neutral explanations simply aren't credible in this case.

People concerned about non-discrimination in this country need to stop worrying about the 1-2% of prospective white law school students at the most elite institutions who may attend a slightly less prestigious law school because of affirmative action, and start worrying about the nearly 80% of high income blacks and nearly two-thirds of middle class blacks who are paying several thousand dollars a year too much to mortgage companies on the basis of race.

The silence of regulators who should be enforcing the existing laws against discrimination by lenders on the basis of race in this area is deafening. The data we already have should be driving a wave of high level prosecutions, not mere requests for more data.

Merit driven mortgage lending is an important part of the bootstap mechanism that allows families to move up the socio-economic ladder. It also is a critical means of breaking down the racial segregation in housing that bedevils almost every American city. This is a key pressure point in the remaining edifice of racial discrimination that exists in the United States and it needs to be squeezed. Otherwise, we will delay for another generation the dismantling of the race based caste system that has been permitted to persist in this country, despit the progress made in the 1950s and 1960s to enhance racial equality.

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