Mortgage lending rates vary; southeast the most expensive

Mortgage lending seems to be an odd science to most consumers. They don’t really know how a bank or mortgage company decides what interest rate to charge on their home loans. And that makes sense; the calculations required to determine profitability over the 30 life of the average loan are pretty significant, plus the lenders have to factor in the likelihood that the loan will be paid off early. 

Even harder to figure out is how the figures for subprime loans are determined. Subprime loans are those offered to people with less-than-ideal credit ratings. Almost anyone can get a loan these days, but only those people with top credit scores get the best rates. Most anyone with a lower score can get a loan, but the interest rate will be higher; sometimes by quite a bit. A six percent loan can quickly turn into a ten or twelve percent loan if the credit score is poor. A new study shows that there seems to be a geographic component to the distribution of subprime loans, and that people who live in the southeastern and southwestern United States are more likely to pay subprime rates than buyers in the northeast or northwest.

Buyers, and most lenders, would assume that subprime loans would be issued to the riskiest clients, and that those clients would be evenly distributed throughout the country. That doesn’t seem to be the case, however. Residents of the southeast, such as Georgia, are three times more likely to pay a subprime rate than a resident of Oregon. The study by the      Consumer Federation of America, doesn’t determine why the rates are higher in these areas; it just notes that they are.

One red flag that might be affecting people in the southeast is the fact that this region contains a large proportion of the predatory lending and mortgage fraud committed in the United States. In fact, Atlanta, Georgia, seems to be the city in which the most fraud is committed. While most fraud is committed by insiders, such as brokers and appraisers, the losses are ultimately paid by the consumers in the form of higher interest rates.

There are indications that mortgage rates are determined by race, and the areas with the lowest rates, the northeast and northwest, are the areas most likely to have Caucasian buyers. This could be an indicator of bias on the part of the lenders or simply an indicator that members of certain minority groups, as a whole, constitute a greater risk for lenders.

What this means for borrowers is that anyone who is seeking a home loan in the southeast or southwest should take extra time to shop around. Talk to a number of lenders and a number of different types of lending institutions. You can get loans from banks, mortgage companies, savings and loans, credit unions and more. It will definitely be worthwhile to spend a few weeks doing research, as lenders in those areas seem more likely to offer higher interest rates than lenders elsewhere in the U.S.