Home loans still cost minorities more

Fifty years ago, it was almost unheard of for anyone other than a Caucasian to have a mortgage. It wasn’t that minorities could afford to take out home loans; lenders simply wouldn’t do business with anyone other than whites. The process of excluding entire races of people, and their neighborhoods, from the business model is known as redlining. It’s a not-too-pretty piece of the past in the mortgage industry.

Today, that has changed, and more blacks and Hispanics own their homes than ever before. That’s great, as it helps to foster the sense of “everyone is equal” that makes America great. Unfortunately, all isn’t really equal in the lending industry. Yes, the loans are available, but recent studies show that blacks are four times as likely as whites to pay high interest rates or have what are known as “subprime loans.” Blacks are twice as likely to receive a home loan or HELOC than they were ten years ago, but 25% of them are paying a huge premium for the privilege.

Few would question that blacks and Hispanics, as a group, earn less than whites. Along with lesser earnings come other financial problems. Minorities, as a rule, are less financially solvent than whites. That may be true for the groups as a whole, but it’s not true for individuals and these studies show that any member of a minority group is more likely than a similarly-salaried white to have a subprime loan. Some blacks with six figure incomes have been offered mortgages with higher interest rates than whites with $40,000 incomes.

The lending situation for minorities has taken an ugly U-turn. Instead of being left out of the mortgage business, minorities are now targets for predatory and subprime lending. There are a few companies that specialize in subprime lending; New Century is one of them. These companies seem to be targeting minorities for these pricey, high-profit loans.

Many minorities come from families that traditionally have not owned their homes, and as a result, many in these groups are less informed about the home buying process. They tend to use real estate Websites less often, tend to ask fewer questions of lenders and realtors and have less of a tendency to shop around for the best rate. They also tend to be less informed about the significance of the credit score and how it affects the lending process. The failure to do these things can be expensive; the difference in a 6.5% loan and a 10% loan adds up to tens of thousands of dollars over the life of a mortgage.

Education is the key here. There is, at the moment, little Government oversight into the process of lending based on race. The lenders involved, including New Century, say that their lending practices are not discriminatory, and that they lend strictly according to salary and credit rating. That makes it incumbent upon the consumers themselves to be aware that they may be targeted for a subprime loan and to do something about it. The best thing to do about it is to become informed. Learn more about the lending process. Learn more about FICO credit scores and how they affect your mortgage. This applies to everyone of every race - the more you know, the better your position will be when it comes time to take out a loan.