African Americans and Hispanics pay higher interest rates on mortgage loans than whites, and cases that can’t be explained by borrower-related factors are being probed, a federal report said.

A Federal Reserve Board analysis of 2004 home-lending data shows that even after adjusting for factors such as income level that could raise mortgage interest rates, blacks are still nearly twice as likely as whites to be given high-cost loans.

Regulatory agencies, including Housing and Urban Development and the Fed itself, are investigating, a spokeswoman at the Federal Reserve confirmed to Inman News.

The mortgage industry is under a spotlight for alleged discriminatory lending practices. The 30-year-old Home Mortgage Disclosure Act, or HMDA, which comes under Federal Reserve purview, was upgraded for 2004, requiring lenders to report new categories of data, ostensibly to uncover disparate, or discriminatory, behaviors.

Researchers at the Federal Reserve, who analyzed the data lenders were required to submit to regulators, said that despite the disparities, the availability of high-cost, risk-based mortgage loans broadens the availability of home financing. The report said such lending has made home loans much more available to borrowers with bad credit.

Factors such as loan price, property location and income level can often explain the disproportionately high interest rates paid by African Americans and Hispanics, the report said. But these factors don’t explain all the cases, according to the report.

“Analysis at the level of individual lenders suggests that about 2 percent of the 8,853 lenders covered by HDMA exhibited a statistically significant difference in the incidence of higher-priced loans between black and Hispanic borrowers, on the one hand, and non-Hispanic white borrowers, on the other, after accounting for factors included in the HDMA data,” the report said.

The Federal Reserve is investigating the financial institutions under its purview included in that 2 percent that appear to be discriminating, the report said. The Federal Reserve has contacted the institutions it supervises that exhibited “relatively large pricing differences by race, ethnicity, or sex to learn more about their lending practices and to improve compliance oversight,” the report said.

Additionally, a review of the 2004 data by other agencies is underway, according to the report.

“A lot of the lenders are private lending companies and are under HUD’s jurisdiction,” a Federal Reserve spokeswoman said. HUD will investigate these lenders, she said, but she would not give the names of the lenders under investigation.

“The Federal Reserve is sharing the screening process with other agencies so that, if they wish, they may integrate them into their supervisory programs. It is also responding to agency requests for additional, more detailed analysis of individual institutions,” the report, “New Information Reported under HDMA and Its Application in Fair Lending Enforcement,” said.

The report also found that many of the disparities were because minorities are far more likely to borrow from companies specializing in loans with high rates. In 2004, interest rates of about 8 percent and higher were considered high, while market rates averaged around 6 percent.

Before the current attention on their practices by the Federal Reserve, attorney Paul Hancock told Inman News, lenders had been scrutinized by the Federal Trade Commission, which primarily looked for deception or unfairness. “Now, with HMDA, it’s about impermissible discrimination,” he explained.


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