Home loans still expensive for minorities

Studies show minorities still paying more for equity loans and mortgages

The buying of a home is an expensive proposition; it is, for most people, the most expensive thing they will ever buy. For some people, it’s even more expensive than that. According to a study by the Center for Responsible Lending, Latinos and African-Americans are 30% more likely than whites to obtain a subprime mortgage, even if all other economic considerations are equal.

The study, using data from 50,000 subprime loans, suggests that there may still be some subtle, or not so subtle racism throughout the mortgage industry. 

Subprime lending, while loosely defined, is an area of lending with interest rates that are several points higher than the “prime” rates offered to borrowers with the best credit scores. In addition to the higher interest rates, subprime loans tend to carry higher fees and are more likely to have prepayment penalties, making it harder for the borrowers to refinance elsewhere.

The Mortgage Bankers Association disagrees with the study, and suggests that its methodology may have been flawed. As a group, minorities do tend to have higher interest rates, but only because they, as a group, tend to have lower incomes and worse credit. But the CRL study compared minorities with whites at equal credit and income levels, and determined that even if both were the same, the minorities were still more likely to pay more for their home loans.

This seems to be an odd finding at a time when lending is slowing down due to higher interest rates and peaking prices in the market. Lenders, one would think, would be equally eager to obtain financing for any and all qualified applicants regardless of ethnic or racial factors.

Minorities, and everyone else, should consider the following before rushing to sign with the first lender that offers a home loan:

• Shop around for a home loan. Talk to several different lenders. Talk to friends, neighbors, relatives and coworkers. Ask where they got their loans and if they were fairly treated and if they got favorable terms. This will not only help you find a lender but will also help you rule out certain lenders if you hear negative things about them.
• You can negotiate - It’s becoming a buyer’s market when it comes to loans. Sales are slowing down and lenders are becoming more eager to find customers. You may have a bargaining chip just by showing interest.
• Check with various organizations, such as the department of Housing and Urban Development. They may have some useful advice for finding a nondiscriminatory lender.
• Watch out for lenders that urge you to borrow more than you can afford to pay. There are still lenders out there that are pushing risky loans, such as Option ARM and interest-only mortgages. Those loans are best avoided by people who are not interested in having their payments increase dramatically in the future.

It is unfortunate that in today’s society, members of minority groups still have to be concerned about being mistreated in business. The only color that lenders should care about is green. Take your time when seeking a lender, and make sure that you find one that will offer you the same terms they would offer anyone else.