Mortgages for Minorities: How much is too much?

The Fed has released several reports over the last few years that express, in detail, the
differences between mortgages offered to minorities and mortgages offered to whites.
While the industry tries to maintain that they offer fair business practices, the results
don’t support this at all. Minorities are more likely to be denied a home loan, often pay
higher interest rates than whites and frequently must provide a larger down payment. The
gap between minority home owners and whites continues to narrow at a snail’s pace, but
steps are being taken to help change the situation.

Loan Rejection

African-Americans and Latinos suffer a large percentage of rejections when applying for
mortgages, research suggests. Latinos have the highest denial rate, nationwide, with
African-Americans coming in 6th, behind Latinos and other minorities. Lenders say it has
nothing to do with minority status and much more with credit ratings and debt loads that
are not taken into account by the surveys.

Local and national programs have been instituted to help minorities achieve home
ownership, including Self-Help, HUD and other programs. Wachovia and BB&T also
offer several programs on local levels geared towards providing sustainable mortgages
for minorities.

Higher Interest Rates for Minorities

African Americans and Latinos are much more likely than whites to have higher interest
rates, according to a study by the Federal Govt. The study shows that the disparity lies
across the board, in all income brackets, but is especially prevalent in the instance of
minorities with higher incomes. As strange as it seems, high earning minorities are more
likely to get a higher interest rate mortgage than lower earning applicants. The study
shows that discrimination certainly plays a role in lending, today.

Legislation, though slow moving, is before law makers to help correct the situation and
several groups are lobbying Washington for more action and penalties for lenders
practicing racial discrimination. Again, lenders say the study did not take into account
credit ratings or debt load for the applicants.

Down Payments

Due to the nature of the loans they are able to attain, minorities are sometimes required to
put down larger down payments than whites. This is a major reason for the lower
percentage of home ownership among minority groups. The same study cited above
released their findings that many minorities are able to pay the equivalent of a mortgage
payment in monthly rent, but are unable to save enough money to make a large down
payment.
The President’s much maligned “zero down” plan is aimed at providing homes for
minorities with little or no money down through the American Dream Down Payment
Fund. This program is designed encourage home ownership in minorities, helping to
close the gap between minority home owners and whites.

Conclusion

While steps are being made, they are not enough to close the gap between minority home
ownership and that of whites. Minorities face a myriad of discriminatory practices in the
housing and lending industry and only a concerted effort by citizens and lawmakers will
make a difference. Old stereotypes need to be wiped away and new practices instituted to
change the face of the lending industry.