Fed finds racial disparities in loan rates

WASHINGTON – “The incidence of higher-priced lending for blacks and Hispanic white borrowers is notably greater than for non-Hispanic whites,” Federal Reserve analysts wrote in their quarterly bank lending practices report.
“Similar patterns are shown … in denial rates,” the report said, while homeownership rates continued to be lower among minorities than whites.
Among homeowners who refinanced last year, the Fed’s Senior Loan Officer Opinion Survey found, 52.8 percent of blacks received high-cost loans, up from 49.3 percent in 2005; 37.7 percent of Hispanics, up from 33.8 percent in 2005; and 25.7 percent of whites, up from 21.0 percent in 2005. The survey, conducted in July, includes from 53 domestic and 20 foreign financial institutions.
Banks must report the race of the borrower whenever they issue a first or second mortgage whose rate is significantly higher than that on a Treasury note or bond with a similar term, Bloomberg News noted. But the Fed’s report observed that data on credit histories, loan-to-value ratios and debt-to-income ratios – key factors in loan interest rates – are not included in its analysis of high-cost loans.
Still, data from the U.S. Department of Housing and Urban Development – where Bloomberg said a “record number” of discriminatory lending probes has spurred the creation of a separate HUD division to handle them – indicate the problem is real. “Differences by race and ethnicity remain stubborn, persistent and significant,” Josh Silver, a vice president of research and policy at the National Community Reinvestment Coalition in Washington, D.C., told Bloomberg. “The differences are not narrowing.”
In other data, the survey found that “considerable net fractions” of domestic respondents had further tightened lending standards on subprime and nontraditional mortgage loans in the second quarter, while only “a small net fraction” had tightened standards for prime mortgages, Fed analysts said in a news release.
Respondents told the Fed they had tightened their standards for commercial real estate loans in the second quarter. But most institutions had eased their standards for commercial and industrial lending, the survey found, although “small net fractions of domestic institutions” and “15 percent of U.S. branches and agencies of foreign banks” had tightened their standards for such loans.
Additional Federal Reserve economic research data, including the 55-page full report from the July 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices, is available at www.federalreserve.gov.

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