Different interest rates for different racial groups?

by Justin da Rosa24 Aug 2015
A recent study suggests one minority group pays higher mortgage rates.

A Florida Atlantic University study found there is a discrepancy in mortgage rates paid by African-American and white homebuyers.

“There was a reason to believe that they should be treated the same because other studies suggest that (African-American) borrowers tend to have lower default risk,” Ping Cheng, a FAU finance professor, and the leader of the study, told the South Florida Business Journal. “If they get a loan, that means the (African-American) borrowers… generally, maybe comparably, have lower risk profiles and they should be the same in terms of interest rate.”

The study found that on average African-American borrowers pay about 29 basis points more per loan than the average Caucasian borrower. Young African-Americans with low education and those with low incomes pay the highest, the study found.

There is some suggestion African-American women may suffer the most from any unfairness in lending practices. They are charged, on average, 0.58% more than their Caucasian counterparts.
The researchers believe their findings could lead to policy changes for the industry, which would help level the playing field.

“I think the results will have some policy implications,” Chen said. “There should be some ways to help borrowers.”

According to the study, that means paying $82.86 per month more for a mortgage assuming a $250,000, 30-year mortgage at a rate of 3.75%.

The study was conducted by using data from three versions of the U.S. Survey of Consumer Finance. The researchers plan on conducting a similar follow-up study using lender data.


Should CFPB have more supervision over credit agencies?