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Study reveals mortgage inequities

The Association of Community Organizations for Reform Now study finds minorities are less likely to get a home loan, and if they do, they often pay more.

If you are African-American or Hispanic, you are far more likely to be turned down for a home loan than a white person, even if you make good money.

And, if you are able to get a mortgage, you are likely to pay higher interest rates and fees. You're also likely to be steered to a government-backed rather than a conventional loan.

So says a recent study by the Association of Community Organizations for Reform Now, or ACORN, a national organization that works for the empowerment of people with low or moderate incomes.

The group analyzed data from the Federal Financial Institutions Examination Council, which collects information about lending by more than 7,800 lenders.

ACORN has recommended that regulators watch lenders more closely for signs of lending discrimination. They also want stiffer fines and more reporting requirements.

There was some good news in the study, though it's slight: Minorities were less likely to get turned down for loans last year than they were the year before. Still, there is a large homeownership gap between whites and minorities.

Consider this: African-American applicants in 1999 were twice as likely to be turned down for a mortgage as white applicants, and Hispanics were nearly 1{ times more likely to be rejected.

And those numbers hold true when comparing minority applicants with white applicants of the same income level. In fact, the disparity is more pronounced at higher income levels. Nationally, upper-income African-Americans were turned down more than 2{ times as often as whites.

The study's authors caution that their findings should not be interpreted as evidence that lower-income whites have no trouble buying a house.

"Traditional lending institutions continue to fail to adequately serve low- and moderate-income communities of all races," the study said. Residents of low-, moderate- and middle-income neighborhoods all had a harder time getting a mortgage than residents of upper-income areas.

The consequences of not being able to buy a home are more than just social; homeowners help build up neighborhoods, while renters have no stake in bettering their community. Also, homeownership is one of the few ways people with low incomes are able to accumulate wealth.

"The difference between renting and owning a home marks a separation between getting by from day to day and building up the equity that could later be used as collateral for an investment in higher education or starting a business," the report says.

Many African-Americans and Hispanics who do get a mortgage pay more for it because they are more likely to end up with loans at higher interest rates.

The study found that 15 percent of African-American home buyers and 10 percent of Hispanic home buyers ended up with subprime mortgages, which carry interest rates at least 2.5 percent higher than a conventional loan and fees that are 1.5 percent to 3 percent higher.

Comparatively, 4 percent of white home buyers get subprime mortgages.

With higher interest rates and fees, a typical subprime borrower would end up paying more than $200 a month more on a $100,000 loan, the study's authors estimate.

The authors of the study made some specific recommendations for helping to lessen lending discrimination.

Congress should look for ways to make anti-discrimination laws more effective and require lenders with patterns of discrimination to improve their practices, they said. The suggestions include:

Putting a moratorium on bank mergers for all lenders with patterns of racial discrimination in their lending.

Strongly enforcing fair-lending laws, imposing money penalties and telling the lenders to stop their discrimination practices.

Studying the impact of credit scoring and automated underwriting, a process where a computer gives borrowers a score that determines their creditworthiness based on a variety of factors that aren't disclosed. No one has examined how the scoring process affects low-income and minority borrowers.

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