Many people brush off mortgage lending discrimination against Blacks as a result of African Americans’ lower rates of creditworthiness, wealth, education and so forth. But a new study found that even controlling for those factors, Black applicants are still more likely to be hit with higher interest rates. And Black women, thanks to gender bias being thrown in the mix, get the shortest end of the stick.
A new study entitled Racial Discrepancy in Mortgage Interest Rates found that Black borrowers pay 13.8 basis points (or 0.138 percentage points) more than comparable White borrowers. Naysayers say that Black buyer habits, such as preferring a 30-year fixed rate mortgage (which has the highest interest rate among mortgage lending products) could be the reason behind the “illusory” race disparity. But the lead investigators don’t buy it.
“If this indeed is the case, one would expect that, once all the objective measures (mortgage features, borrower characteristics, and market conditions, etc.) are controlled for, the racial disparity should disappear in a properly conducted analysis,” the authors wrote.
Controlling for the aforementioned objective measures, the lead investigators still found a significant disparity between Black and White borrowers. Among homeowners in the 25th income percentile, Blacks pay almost six basis points more than comparable Whites. In the 50th percentile — better known as the median — the disparity is 13.8 basis points in Whites’ favor.
The interest rate pay disparity is highest between Blacks and Whites in the 75th income percentile — a whopping 36.7 basis points.
“For a typical $200,000, 30-year fixed-rate mortgage issued at 4.5% for white borrowers, the additional 0.367% interest rate charge means $44.07 extra payment per month and $15,867 additional interest costs over the life of the loan for the black borrowers,” the authors wrote.
“We conclude that, while the racial disparity in mortgage rates is widespread between black and white borrowers, it is the more financially vulnerable black women who suffer the most,” they added.
Oh yes — on top of racial discrimination, there is gender discrimination which makes Black women much more vulnerable to being faced with high interest rates.
The average Black male who successfully nabs a mortgage typically pays 8.9 basis points higher than white male counterparts. Black women, on the other hand, shell out 26.5 basis points more than their White women. “Black women […] would pay nearly $9,000 more than white women,” Quartz said.
“Race does play a role as lenders consider whether to deny or approve a mortgage loan application,” the report said, quoting another study.