Minorities unfairly pushed into subprime, study finds

by Adam Smith12 Aug 2013

A new study has found that wealthy minorities were more likely to be denied prime loans than affluent whites.

A New York University study of Home Mortgage Disclosure Act data from 2006 has revealed that wealthier minorities were more likely - at least before the housing meltdown - to receive subprime loaans than whites of equivalent income. The study also found that black and Latino home loan applicants were more likely to be denied prime loans, even after controlling for gender and income.

“These findings offer strong evidence for the continuing significance of race in one specific, but crucial, aspect of the housing market: the mortgage application process,” said Jacob Faber, a doctoral fellow at NYU’s Furman Center for Real Estate and Urban Policy.

Faber said racial disparities in lending helped to fuel the proliferation of subprime lenders.

“The historical absence of affordable credit in communities of color and for applicants of color, which created a market void into which subprime lenders grew, was not accidental. While it is not possible, in this study, to identify personal prejudice on behalf of lenders, racial disparities in subprime lending are nonetheless part of a long trajectory of structural, race-based disenfranchisement.”

Faber's study found that,, after controlling for borrower, loan and geographic factors, black mortgage applicants were 2.8 times more likely, Latinos two times more likely and Asians 1.1 times more likely to be denied a loan than were whites. Even upon approval, wealthier black and Latino applicants were 2.4 times more likely to receive a subprime loan.

"Lenders have argued that subprime loans, with their higher costs, were intended to pass more of the risk along to borrowers they deemed less likely to meet the repayment schedule of a mortgage loan,but these findings don’t substantiate lender claims that subprime loans were for riskier borrowers — higher incomes, regardless of race, should have indicated lower risk for the lender and less need for a high cost loan,” Faber said.

COMMENTS

  • by Rick | 8/12/2013 9:22:36 AM

    Did they base only on income only or debt to income ratio?

  • by Mike Silkworth | 8/12/2013 9:24:12 AM

    Not really an opinion, but rather a question. Did this Meta-Analysis of the HMDA data capture information on the racial and ethnic profile of the Lender? If a borrower is seeking out a mortgage from someone of similar race and ethnicity - is there an issue with the availability of non-sub-prime products made available to minority lenders? Also has there been any follow up to see if the mortgage officer compensation rules have changed the distribution of prime vs sub prime mortgages?

  • by Tim | 8/12/2013 9:25:38 AM

    Interesting article, but one question remains open, what were their FICO scores. The article leaves many unanswered questions.

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