African-Americans and Latinos, government figures show, get high-interest sub-prime mortgages far more often than Whites. Now researchers at the Center for Responsible Lending find those disparities persist even when the borrowers have the same qualifications as Whites.
Historically 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 says the Center in its groundbreaking new research.
The most extensive study of its kind shows that 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 subprime loans.
“A subprime loan is nothing more than a loan that is not saleable to Fannie Mae and Freddie Mac,” explained Caesar Marshall of CFA Mortgages. Lenders force holders of subprime loans to pay a larger down payment or higher interest rates than prime loan holders.
In the study, the Center’s researchers examined 50,000 subprime loans. The researchers found that Blacks were almost a third more likely to get a high-priced loan than White borrowers with the same credit profile.
When asked how Blacks can avoid paying high-interest subprime mortgages, Noel Shepherd, also of CFA Mortgage continued, “We don't initially offer people subprime loans. Instead we would desktop underwrite the loan prior to selling it to Fannie Mae and Freddie Mac.” A desktop underwriting explained Shepherd gives him and the customer an underwriting grade and summary of findings, which affects the rates the customer will get, before starting the formal process.
Marshall will work with participants in understanding how to get the best mortgage at Port of Harlem’s Building / Renovating Your Own Castle II.
Photo: Caesar Marshall and Noel Shepherd of CFA Mortgages.