Community Dividend

Borrowers of color receive pricier mortgages, study finds

Published September 1, 2006  | September 2006 issue

A recent study by the Center for Responsible Lending (CRL) finds African American and Latino borrowers are more likely to receive high-interest subprime loans than white borrowers, even when controlling for many legitimate underwriting factors.

The findings, detailed in a report titled Unfair Lending: The Effects of Race and Ethnicity on the Price of Subprime Mortgages, are based on an analysis of more than 177,000 subprime loans that were originated in 2004. Subprime loans, which are typically offered to borrowers who are deemed high credit risks due to their blemished or insufficient credit histories, often carry interest rates that are higher than the prevailing market rate.

CRL researchers created a dataset of subprime loans by combining information collected under the Home Mortgage Disclosure Act (HMDA) with records from the Loan Performance Subprime Asset-Backed Securities Database. They labeled a subset of loans from the combined dataset as "higher-rate" subprime loans. These loans have an annual percentage rate of interest at least three percentage points higher than the yield on a U.S. Treasury security of comparable maturity. After adjusting the dataset to control for the effects of credit scores, loan-to-value ratios and several other underwriting factors, the researchers examined and compared the loans that white, African American and Latino * borrowers received.

The analysis reveals that African Americans and Latinos are significantly more likely to receive higher-rate subprime loans than similarly situated whites. For Latinos, discrepancies mainly appear with home purchase loans. The increased likelihood of a Latino borrower receiving a higher-rate subprime loan for home purchase ranges from 29 percent to 142 percent, depending on the type of interest rate (i.e., fixed vs. adjustable) and the existence of prepayment penalties. For African Americans, discrepancies appear for home purchase and refinance loans. The increased likelihood of an African American borrower receiving a higher-rate subprime loan ranges from 6 percent to 34 percent, depending on the loan's purpose and features.

To access the full report, visit

*For purposes of the study, "Latino" refers to any borrower identified as "Hispanic or Latino" in the HMDA data.

For results of a related study conducted by the Board of Governors of the Federal Reserve System, visit