Subprime mortgages are nearly double for Hispanics and African Americans

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Snapshot for June 11, 2008.

Subprime mortgages are nearly double for Hispanics and African Americans

By Algernon Austin

Subprime mortgages have gone disproportionately to Hispanics and African Americans. In 2006, the rate of subprime mortgages for home purchase for Hispanics and Africans Americans was approximately double the white rate according to the Joint Center for Political and Economic Studies. Twenty-six percent of mortgages for home purchase by whites were subprime (see Chart). For Hispanics, it was 47% and for African Americans, 53%.1

Recent studies suggest that creditworthiness—alone or in combination with factors other than race—cannot account for these disparities. When researchers from the Federal Reserve and the Wharton School of Business conducted an analysis that took into account the percent of adults in a neighborhood who were a very high credit risk, they still found a positive relationship between the prevalence of subprime loans and the share of minorities in a neighborhood.2 An analysis by the Center for Responsible Lending found that even after taking into account individual credit scores and other characteristics, Hispanic and African American borrowers were more than 30% more likely to receive higher-rate subprime loans.3 These and other studies, coupled with the long history of racial discrimination in lending, raise the prospect that discrimination may be a factor in the high rates of subprime loans among Hispanics and African Americans.

While a higher percentage of people of color assume subprime mortgages, most subprime loans do not go to people of color. For many years, people of color have been calling for more attention to and better regulation of lending institutions. Had policy makers been more attentive to these calls, there might never have been a subprime mortgage crisis.

Notes

1. Wilhelmina A. Leigh and Danielle Huff, African Americans and Homeownership: The Subprime Lending Experience, 1995 to 2007, Joint Center for Political and Economic Studies, November 2007, p. 5.
2. Paul S. Calem, Jonathan E. Hershaff and Susan M. Wachter, “Neighborhood Patterns of Subprime Lending: Evidence from Disparate Cities,” Housing Policy Debate 15(3), 2004: 603-622.
3. Debbie Gruenstein Bocian, Keith S. Ernst and Wei Li, Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages, Center for Responsible Lending, May 2006.