Published: May 2006

Race, ethnicity and subprime mortgages

The Center for Responsible Lending released a new study showing that African-Americans and Latinos get high-priced subprime mortgages far more frequently than whites - even when they are equally qualified.

In an extensive new study, the Center for Responsible Lending (CRL) finds that African-Americans and Latinos are commonly almost a third more likely to get a high-priced loan than white borrowers with the same credit scores. Download a PDF of the study.

Lenders say they charge more because African-Americans and Latinos tend to have shakier credit histories, which makes lending to them riskier.

But that explanation is simply wrong, charges CRL. Even after controlling for differences such as credit scores and the amount of the down payment, African-Americans and Latinos still wind up with a disproportionate share of expensive loans. The result of close examination of 50,000 subprime loans, the findings show that decades of work by the civil rights movement to bring fairness and opportunity to all homebuyers is still unfinished.

"This report sheds new light on the challenges Latinos face when attempting to buy a home," said Janis Bowdler, housing policy analyst at the National Council of La Raza, the Latino civil rights group. "It is critical to the well-being of the homeownership market that all families have fair and equal access to credit."

The disparities are not only unfair, they have serious economic repercussions: Higher loan costs discourage minority families from buying a home; and higher costs increase the risk of foreclosure for those who do buy homes, threatening working-class neighborhoods and the U.S. economy as a whole.

"When African-American and Latino families are steered into higher-cost loans, this path to security is made steeper," said Hilary Shelton, director of the Washington bureau of the NAACP, the lobbying and public policy branch of the civil rights group. "That means that it's even harder for families of color to build equity for their future—it's even harder to send their children to college and build wealth for the next generation."

And while the study's results are disturbing for African-Americans and Latinos, all borrowers may be at risk from some of the sub-prime market's common practices.

New York Attorney General Eliot Spitzer is trying to get banks in his state to disclose more about their lending practices, but the banks and even federal regulators are fighting him in court.

"We sincerely hope that the Office of the Comptroller of the Currency investigates loan pricing disparities at the banks it regulates with the same vigor with which it sought to stop our inquiries," said Natalie Williams, chief of the attorney general's civil rights bureau. "The center's report, and the troubling racial disparities it reveals, deserve nothing less."

On Capitol Hill a House subcommittee is debating whether an bill to protect consumers from predatory loans should include weak provisions favored by industry or stronger protections for borrowers in the vast sub-prime mortgage market, where people with blemished credit borrow and most mortgage abuses occur. The lending industry is lobbying subcommittee members heavily. In February, Consumer Action signed on to a letter to Congress listing four important objectives to any predatory lending legislation. Download a copy of the letter.

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Center for Responsible Lending

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