Researchers agree minorities are more likely than whites to get high-cost mortgages, but analysts can’t agree why.
Does the 90047 zip code have a high foreclosure rate because African Americans were forced into high-cost loans? Or is the area’s foreclosure rate the result of economics?
Either way, say some minority and housing activists, the fact that minorities are disproportionately hurt by lending practices in the United States is real—and so are its consequences.
RACE OR RISK?
Study after study show that minorities are more likely than whites to get subprime mortgages, which are high-cost loans made to people with poor credit. In its heyday earlier this decade, the subprime market was cheered as an avenue through which historically shut-out borrowers could get loans. That frequently meant minorities.
So long as home prices rose, the subprime market seemed a positive example of how to increase home ownership, but as the housing market weakened this year, many began to question whether the loans were fairly priced.
In September, the Federal Reserve released a study that found 52.8 percent of African-Americans got a high-cost home loan when they refinanced in 2006, compared to 37.7 percent of Latinos and just 25.7 percent of whites in the same year.
A similar study by the Association of Community Organizations for Reform Now, known by its acronym ACORN, in September found the same pattern even when income was equal.
According to ACORN, upper-income blacks were 3.3 times, and Latinos 3 times, more likely than upper-income whites to have a high-cost loan when purchasing a home in 2006.
Jay Brinkmann, vice president of research and economics at the Mortgage Bankers Association, disagrees.
He believes that if researchers could account for all the factors that go into pricing a mortgage, they would find race doesn’t matter.
“The pricing is based on risk, not race,” said Brinkmann.
THE AMERICAN DREAM
In July, the National Association for the Advancement of Colored People, or NAACP, filed a discrimination suit against 11 of the country’s largest lenders, saying minorities are steered toward high-cost loans more often than whites, even after all risk factors are considered.
The ACORN study found that high foreclosure rates cause higher rates of crime, lower tax revenue and property values. In other words, whole minority communities, not just individuals, are hurt when houses go under, said Hilary Shelton, director of the Washington D.C. Bureau of the NAACP.