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Research Findings

For this report, NCRC analyzed HMDA data gathered in 2005 for metropolitan areas, the most recent publicly available. NCRC considered loans for traditional single-family homes occupied by the borrowers of the loans (investor-owned properties were not considered). The home loan data considered was home-purchase, refinance, and home-improvement lending (first liens only). HMDA data report pricing information for high-cost loans. NCRC considered loans without pricing information to be market-rate loans and loans with pricing information to be high-cost loans.

NCRC analyzed racial disparities in lending experienced by LMI borrowers considered separately from MUI borrowers. Income level is an important factor in the lending process. While persistent racial disparities across all income levels do not prove discrimination, it would appear that stakeholders could take action to narrow particularly large disparities for MUI minorities and whites. Large disparities at all income levels suggest a lack of competition among lenders and other market barriers that can be reduced by concerted action. Stakeholders and policymakers must consider carefully any differences by race that persists for MUI borrowers.

Largest and Smallest Disparities Experienced by African Americans, Hispanics, and Asians

In a more detailed description of the data analysis used in this chapter, on NCRC's Webpage (ncrc.org/pressandpubs/documents/NCRC%20metro%20study%20race%20and%20income%20disparity%20July%2007.pdf), we discuss racial disparities in lending on a number of dimensions. Disparities are discussed comparing LMI minorities and LMI whites and then separately for MUI whites and MUI minorities. Disparities are detailed in all metropolitan statistical areas (MSAs) for which there are large enough samples of loans (50 or more) for each racial group to provide statistically meaningful analyses. For more detail on disparities across MSAs, please see ncrc.org.

Racial Disparities Increase as Income Level Increases

Racial disparities in high-cost lending increase when income levels increase. When the percentage of high-cost loans received by whites is compared with the percentage of high-cost loans received by minorities, the differences in the percentages is larger for MUI whites and MUI minorities than for LMI whites and LMI minorities.

The percentage of high-cost loans received by MUI borrowers is lower than for LMI borrowers, but the percentage of high-cost loans received by MUI whites drops significantly more than the percentage of high-cost loans received by MUI minorities. For example, in Durham, North Carolina, 48 percent of the loans received by LMI African Americans in 2005 were high-cost, while 16.4 percent of the loans received by LMI whites were high-cost. In other words, LMI African Americans were 2.94 times more likely than LMI whites to receive a high-cost loan (divide 48 percent by 16.4 percent, or the portion of the loans that were high-cost for LMI African Americans by the portion of loans that were high-cost for LMI whites).

When considering MUI borrowers, 38.6 percent of the loans received by MUI African Americans were high-cost, while 8.6 percent of the loans received by MUI whites were high-cost in Durham during 2005. For MUI borrowers, African Americans were 4.50 times more likely than whites to receive loans.

The racial disparity in high-cost lending increased for MUI borrowers in Durham because the incidence of high-cost lending dropped much more for MUI whites than for MUI minorities. The percentage of high-cost loans received by whites dropped by about half when climbing the income scale from LMI to MUI (16.4 percent compared to 8.6 percent). In contrast, the percentage of loans received by African Americans dropped by only one-fifth for MUI African Americans compared to LMI African Americans (38.6 percent compared to 48 percent).

For African Americans, differences in high-cost lending increase significantly as income increases across metropolitan areas. LMI African Americans were three times or more likely than LMI whites to receive high-cost loans in just 1 percent of the MSAs. In contrast, MUI African Americans were three times or more likely to receive high-cost loans than MUI whites in 12.4 percent of the MSAs during 2005. The same trend of MUI African Americans experiencing greater disparities continues when considering the number of MSAs in which African Americans were between 2.5 to 3 times more likely to receive loans. LMI African Americans were 2.5 to 3.0 times more likely than LMI whites to receive high-cost loans in 5.1 percent of the MS As. In contrast, MUI African Americans were 2.5 to 3.0 times more likely than MUI whites to receive high-cost loans in 28.0 percent of the MSAs.

Shockingly, MUI African Americans were at least twice as likely as MUI whites to receive high-cost loans in 167 MSAs. LMI African Americans were at least twice as likely to receive high-cost loans in 70 MSAs.

Just as for African Americans, the disparity in high-cost lending for Hispanics becomes greater for MUI Hispanics than for LMI Hispanics. LMI Hispanics were between 2.5 to 3 times more likely than LMI whites to receive high-cost loans in 1.2 percent of the MSAs. In contrast, MUI Hispanics were between 2.5 to 3 times more likely than MUI whites to receive high-cost loans in 11.8 percent of the MSAs. Similarly, LMI Hispanics were 2.0 to 2.5 times more likely than LMI whites to receive high-cost loans in 4.8 percent of the MSAs, while MUI Hispanics were 2.0 to 2.5 times more likely than MUI whites to receive high-cost loans in 27.0 percent of the MSAs.

A common expectation is that disparities in lending by race would narrow as income increases. More affluent borrowers should have fewer difficulties paying their bills on time, meaning that more affluent borrowers should have fewer difficulties maintaining good credit histories. Therefore, it would seem that MUI minorities should have creditworthiness similar to that of MUI whites. As a consequence, MUI minorities should have expanded access to market-rate loans and receive fewer high-cost loans. On the other hand, some would say that differences in creditworthiness by race could persist even when income increases. Thus, differences in high-cost lending could be the same for MUI minorities compared to MUI whites as it is for LMI minorities compared to LMI whites.

While this study was not able to attain creditworthiness by race and income, it is startling nonetheless that differences in high-cost lending increases as income levels increase. This suggests that creditworthiness of minorities declines compared to whites as income level increases. Another explanation for this finding, which NCRC finds more plausible, is that discrimination and/or other market imperfections are impeding access to market-rate loans for MUI minorities. Lenders could be overtly steering minorities qualified for prime loans into high-cost loans. Alternatively, lenders specializing in high-cost loans could be working harder than market-rate lenders to make loans to MUI minorities. Both possibilities (discrimination and less effort by market-rate lenders) could be occurring simultaneously. The fact that MUI minorities receive such large percentages of high-cost loans suggests that multiple barriers to equal access are occurring. These disparities suggest that the burden lies on skeptics to disprove the existence of discrimination and other barriers to equal access to market-rate loans.

 
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