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Mortgages and racial disparities

By Crissinda Ponder · Bankrate.com
Friday, July 27, 2012
Posted: 8 am ET

It appears discriminatory practices in mortgage lending may still be a significant issue today.

According to a joint report by seven community development advocacy groups, black and Latino homebuyers in predominantly nonwhite communities received significantly fewer conventional mortgages than white homebuyers. In fact, black and Latino borrowers in nonwhite communities were 2.1 times more likely, on average, than residents in mostly white communities to receive government-backed mortgages.

The report studied seven cities: Boston, Chicago, Cleveland, Los Angeles, New York, Charlotte, N.C., and Rochester, N.Y. Here are some of the key findings:

  • Federal Housing Administration and Veterans Affairs loans accounted for 3 in 4 mortgage loans made to black borrowers and 2 in 3 loans made to Latino borrowers. This is in comparison to approximately 1 in 3 loans to white borrowers.
  • Black homeowners received government-backed refinance loans 3.5 times more often than did white homeowners. Latino homeowners got government-backed refis 2.1 times more often.
  • In Los Angeles, homebuyers in neighborhoods of color received FHA and VA loans five times more often than did homebuyers in predominantly white neighborhoods.
  • In Rochester, N.Y., government-backed loans accounted for 86.4 percent of all mortgage loans in communities of color.
  • In the seven cities combined, FHA and VA loans accounted for 74.5 percent of all home-purchase loans made to black borrowers, 66.3 percent of loans made to Latino borrowers and 35.9 percent of loans made to white borrowers.

Based on these figures, it would seem equality is not at the forefront of lending practices in these seven cities. The study outlines steps policymakers should take to ensure that, moving forward, the mortgage industry is fair:

  • Ensure access to affordable mortgage loans for people and communities of color.
  • Expand and enforce the Community Reinvestment Act to promote responsible lending and investment.
  • Engage in vigorous fair lending enforcement.
  • Hold servicers, trustees and holders of foreclosed homes accountable for maintaining the properties.
  • Promptly implement Dodd-Frank's Home Mortgage Disclosure Act data enhancements at the loan level to allow identification of possible lending discrimination.

The report was prepared by the California Reinvestment Coalition, Empire Justice Center, Massachusetts Affordable Housing Alliance, Neighborhood Economic Development Advocacy Project, Ohio Fair Lending Coalition, Reinvestment Partners and Woodstock Institute.

What are your thoughts on these findings? What mortgage industry changes do you recommend?

Crissinda Ponder is an editorial intern for Bankrate. Follow her on Twitter @CrissiPonder.

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7 Comments
david
July 31, 2012 at 7:27 am

if blacks and latinos would pay there bills then they could get a conventional like whites do.this whole banking/housing melt down happened because laws were put in place that forced banks to give loans to blacks and latinos even if they had bad credit.

New Day
July 30, 2012 at 12:36 pm

Here is my take. My husband and I have very good credit. Our credit has been at 770+ for many years. Our income is very good. We are both African American. Over the past 12 years, we have acquired investment properties and rented them. All of our properties are backed by either an FHA or Freddie Mac loan, except one, which is backed by a VA loan. Until reading this article, I was not aware that there were any other types of loans.

From what Ms. Ponder is saying, there are private, non-government backed loans, that are not being made available to non-white customers because of race? If so, what private companies are making this sort of decision? Are the rates better or worse than government-supported loans? Is there a mindset that non-white customers are less responsible, therefore, they should not be trusted with a private loan?

Ken
July 30, 2012 at 9:51 am

Apples,

I completely agree, Ms Ponder's opinion seems bias and unfair. Manipulation of numbers, then still are the areas in question equal in population, median incomes and credit-worthiness? Equal numbers is debt to credit ratios? These numbers are based on the individuals not areas. Would you, Ms Ponder, turn money away based on race?

apples
July 28, 2012 at 7:11 pm

Ms Ponder,
It's not clear you're comparing apples to apples here.

While someone may clearly be of certain race, the question is how do credit scores and risk assessment stand? How many have a history of default in one group over another? Are there broader socioeconomic issues that are a bigger issue here contributing to lender assessment. You seem to make it more black and white than it appears to be. You should report on fact then a conclusion, you start your article with the conclusion. Incongruent with practice of journalism, but typical in recent years.