CU-Backed Study Shows Bias In Subprime Market

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A new study conducted by the Center For Responsible Lending, a subsidiary of Self Help CU, has found that African-American and Latino borrowers pay much higher rates and fees for subprime mortgages than comparable white borrowers.

The study, called "The Neighborhood Distribution of Subprime Mortgage Lending," found that African-American and Latino homebuyers are at greater risk of receiving higher-rate loans than whites, even after controlling for legitimate risk factors.

The disparities they found are large and significant. For many types of loans, borrowers of color were more than 30% more likely to receive a higher-rate loan than white borrowers, even after accounting for differences of risk.

The affects were most pronounced for African-Americans in loans with early prepayment penalties. For Latinos the greatest disparities related to loan type, purchase versus refinance.

The authors of the study suggested that the large disparities for African-Americans in subprime loans with prepayment penalties may be related to yield-spread premiums, since lenders are often more willing to pay these premiums on loans that include prepayment penalties.

It may be, suggested the authors, that African-Americans are granted fewer exceptions than white borrowers on the guidelines for these types of loans.

For Latinos, the greater disparities on purchase mortgages may be because many of the Latino borrowers are recent immigrants, making them prey to higher-cost lenders.

The study was based on 2004 data collected from the Home Mortgage Disclosure Act, which included information on pricing for subprime loans for the first time, and on the Loan Performance Subprime Asset-Backed Securities Database.

The study included data on more than 177,000 subprime mortgages.

The study did not differentiate between lender types.

Ed Roberts can be reached at robertscuj cujournal.com

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