Study: Racial Disparity Persists in Mortgages

DAILY REAL ESTATE NEWS | MONDAY, AUGUST 31, 2015

The rates black and white borrowers are able to get on mortgages differ greatly, according to a newly published study that appears in the July 2015 issue of The Journal of Real Estate Finance and Economics.

Researchers from Florida Atlantic University and California State University, Fullerton, found that black borrowers, on average, pay about 29 basis points more on mortgages when compared to their white counterparts. The highest rate of disparity was found among young black borrowers with low education, as well as borrowers who had income and credit that disqualified them from obtaining the best prime lending rates. However, even when other factors were held constant, the researchers found that black borrowers still paid a premium. 

“When all the traditional variables are controlled – similar mortgage product, similar income level, similar education level, similar shopping behavior – blacks overall as a group end up paying a higher rate on average,” says Ping Cheng, professor of finance at Florida Atlantic University’s College of Business, one of the authors of the study. 

In 2012, the Federal Reserve found black Americans werealso hit hardest by subprime lending.

The study found that the group most likely to pay more than other groups were black female borrowers. 

“When we further dig into the data, we find that generally the low-income black women who are heads of households pay the highest. They are the most vulnerable to subprime lending and higher mortgage rates," Cheng says.

Black women, on average, are charged 57.36 basis points more than their white counterparts, according to the study. For a $250,000 30-year-mortgage at a 3.75 percent per year rate, that could mean an extra $82.86 per month in mortgage payments for a black female borrowers.

Source: “Study Finds Racial Disparity Exists Between What Borrowers Pay for Mortgages,” Florida Atlantic University (Aug. 19, 2015)