By James Devitt
Wealthier minorities are more likely to receive subprime loans than are wealthier whites, according to an NYU study of Home Mortgage Disclosure Act (HMDA) data from 2006—the peak of the previous decade’s housing boom. Moreover, black and Latino applicants are more likely to be denied prime loans—even after controlling for gender and income.
The study, which was published in the journal Housing Policy Debate, was conducted by Jacob Faber, a doctoral Fellow at the Furman Center for Real Estate and Urban Policy and a doctoral candidate in sociology in the Graduate School of Arts and Science.
Faber analyzed data from HMDA, which covered 8,886 lending institutions in 2006. His analysis of loans showed that black home-purchase mortgage applicants were 2.8 times more likely, Latinos two times more likely, and Asians 1.1 times more likely to be denied a loan than were whites after controlling for borrower, loan, and geographic factors. However, across all racial groups, income was positively associated with loan approval—in other words, the wealthier the applicant, the more likely that applicant was approved for a loan.
However, upon approval, even wealthier black and Latino applicants received less-advantageous loan terms than did their white counterparts. Once they cleared the loan-approval hurdle, applications from Blacks and Latinos were 2.4 times more likely to result in a subprime loan than were those from whites. By contrast, Asians were 28 percent less likely than whites to be offered a subprime loan.
“Lenders have argued that subprime loans, with their higher costs, were intended to pass more of the risk along to borrowers they deemed less likely to meet the repayment schedule of a mortgage loan,” explains Faber. “But these findings don’t substantiate lender claims that subprime loans were for riskier borrowers—higher incomes, regardless of race, should have indicated lower risk for the lender and less need for a high cost loan.”