More Money, More Problems

It’s not only low-income borrowers: A new mortgage study shows that wealthy blacks and Hispanics pay higher interest rates than wealthy whites and Asians.

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What does it take to convince federal watchdogs that mortgage bankers can’t be trusted to make housing loans without discriminating by race and ethnicity?

If they need proof beyond all the obvious observational and circumstantial evidence available to the rest of us, then they should pay attention to a study being released today that was conducted by one of my colleagues at the Center for American Progress. Based on an analysis of 2006 federal mortgage data, researchers found that black and Hispanic borrowers were three times more likely than white borrowers to be saddled with high-priced loans. As defined by the Federal Reserve, a high-priced loan is one having an annual percentage rate at least 3 percent higher than a Treasury security of the same maturity.

“Overall, 17.8 percent of white borrowers were given higher-priced mortgages when borrowing from large banks in 2006, yet 30.9 percent of Hispanics and a staggering 41.5 percent of African-Americans got higher-priced mortgages,” the report said. “Only 11.5 percent of Asians got higher-priced mortgages.”

That, in and of itself, is damnable. But, wait, the data grows more disturbing as you drill deeper into the report.

This study is significant because it focuses on the banks that were “responsible for originating more than 1 of 3 of every higher-priced mortgage in the nation at the height of the housing bubble in 2006.” What’s more, the studied banks “are crucial to restoring the mortgage market to get the housing market back on its feet,” Andrew Jakabovics and Jeff Chapman write.

Authors Jakabovics (associate director for housing and economics at the Center for American Progress) and Chapman (research director for the Washington State Budget and Policy Center in Seattle) examined the lending patterns of 14 banks heavily invested in mortgage lending. They label them “systemically significant banks and subsidiaries” largely because of their size and because they’ve all received massive government bailout assistance during the past year.

The report focused on wealthy borrowers of all races instead of lower-income borrowers to minimize arguments that minorities typically have lower incomes and pose higher credit risks, Jakabovics said.

Bank-by-bank Breakdown

Bank of America—According to the report, Bank of America “stopped originating subprime loans [i.e., those with higher interest rates, traditionally offered to riskier borrowers] in 2001. Less than 3 percent of BofA’s loans were higher priced in 2006. In 2006, high-income African Americans and Hispanics, 1.9 percent and 1.5 percent, respectively, had higher mortgages.” Which means: Black people were paying a higher price than some other racial groups to borrow the money to pay for their homes.

At Countrywide (now owned by Bank of America) “African Americans were more than twice as likely to pay higher prices (29.6 percent compared to 13.6 percent).”

Wells Fargo—In 2006, Wells Fargo was the second largest subprime loan originator. African-American borrowers were particularly likely to pay higher prices—47.3 percent compared to 16.7 percent of white borrowers.