My Two Cents

Mortgage Discrimination Against Blacks and Hispanics

Chris Farrell Sep 13, 2007

Since 1975, the Home Mortgage Disclosure Act has required public disclosure of mortgage lending practices in metropolitan areas. Over the years, the data has become more comprehensive. A forthcoming article in the Federal Reserve Bulletin will lay out the results from 2006. The report offers a wealth of data. But I want to focus on an ongoing disturbing result: Evidence that minority borrowers are still systematically discriminated against in the mortgage market. The Fed cautiously offers up lots of qualifications to the data’s results, but it’s still clear that discrimination is at work.

Earlier, the Fed did say that it was referring to the Justice Department five lending discrimination cases for investigation. Maybe a crackdown is coming following all the damage from the subprime mortgage debacle in a number of minority neighborhoods around the country.

Here are some highlights from the report:

The 2006 HMDA data, like the 2004 and 2005 data, indicate that black and Hispanic borrowers are more likely, and Asians borrowers less likely, to obtain loans with prices above the HMDA pricing reporting thresholds than are non-Hispanic white borrowers. These relationships are found for both home-purchase loans and refinancings. Gross differences in the incidence of higher-priced lending between non-Hispanic whites, on the one hand, and blacks or Hispanic whites, on the other, are large, but borrower-plus lender-modified differences are substantially reduced…..

….For home-purchase loans in 2006, the gross mean incidence of higher-priced lending was 53.7 percent for blacks and 17.7 percent for non-Hispanic whites, a difference of 36.0 percentage points. Borrower-related factors included in the HMDA data accounted for about one-sixth of the unmodified difference. Controlling further for lender reduces the remaining gap to 12.6 percentage points. In comparison, in 2005, the unmodified mean incidence of higher-priced lending for such loans was 54.7 percent for blacks and 17.2 percent for non-Hispanic whites, a difference of 37.5 percentage points. For 2005, borrower related factors accounted for about one-fifth of the unmodified difference, and controlling further for borrower and lender reduced the remaining gap to 10 percentage points, a somewhat smaller “unexplained” difference than that found in the 2006 data.

…Analyses of the HMDA data from earlier years has consistently found that denial rates vary by applicant race and ethnicity. For the 2006 home-purchase and refinance loans examined here on an unmodified basis, American Indians, blacks, and Hispanic whites had higher 2006 denial rates than non-Hispanic whites; blacks had the highest rates; and Hispanic whites had rates between those for blacks and those for non-Hispanic whites. The pattern was less consistent for Asians, who had higher denial rates than non-Hispanic whites for home purchase, but lower rates for refinancings.

For home-purchase lending, controlling for borrower-related factors in the HMDA data reduces the differences in denial rates among racial and ethnic groups. Accounting for the specific lender used by the applicant almost always reduces differences further, although unexplained differences remain between non-Hispanic whites and other racial and ethnic groups. For example, for home-purchase loans, the gross mean denial rate was 31.6 percent for blacks and 13.1 percent for non-Hispanic whites, a difference of 18.5 percentage points . Borrower-related factors reduce the difference about 4 percentage points, and lender adjustment further reduces the gap to 8.4 percentage points. The reduction for refinance loans is similar, although unmodified differences in denial rates tend to be smaller. The gross difference between denial rates for blacks and non-Hispanic whites for refinancings is 14.3 percentage points, a difference cut about in half by borrower-plus-lender adjustment.

With regard to the sex of applicants, sole male applicants have nearly the same denial rate as sole females. For home-purchase loans, co-applicants, whether male or female, have somewhat lower denial rates than single individuals.

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