Federal Reserve: Minorities pay more for loans

Wednesday, Sept. 14, 2005 | 9:56 a.m.

WASHINGTON -- Minorities are far more likely than whites to take out higher-priced loans to buy or refinance a home and are denied loans more often. The differences can be explained largely -- but not fully -- by such factors as income, the Federal Reserve said Tuesday.

In an examination of 2004 mortgage data, Fed economists found that the average incidence of higher-priced home-purchase loans was 32.4 percent among blacks, 20.3 percent among Hispanic whites and 8.7 percent for non-Hispanic whites. Higher-priced loans generally fall into the category of "near-prime" or "subprime" and carry higher interest rates.

The Fed adjusted the minority data to take into account factors that determine pricing, such as loan amount, income and location, though not credit scores, which aren't included in data reported to the Fed. That narrowed the gap, with the average outcome of higher-priced lending falling to 15.7 percent for blacks and 11.6 percent for Hispanic whites.

The Fed also examined more complete data from eight subprime lenders -- institutions that make higher-priced loans to borrowers with flawed credit.

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