Blacks paying higher mortgage rates than whites? - cougarguard.com — unofficial BYU Cougars / LDS sports, football, basketball forum and message board

Tex · 07-26-2007, 10:44 PM

I heard Edwards reference this study and I couldn't believe it. Is this only in the subprime market (which has had other troubles of late)? Edwards claimed even wealthy blacks were paying more than whites.

I don't remember ever indicating my race on any form I gave my lender, and we never met face-to-face. I don't know how he ever would've known whether I was black, white, or anything else.

http://www.sun-sentinel.com/business...,4242870.story

SoCalCoug · 07-26-2007, 10:56 PM

I'm guessing if your name is "Jamal" or "Laquisha" they're able to make an educated guess.

FMCoug · 07-26-2007, 11:01 PM

"... the banking industry says it can be misleading because buyers' credit scores, the quality of the home, the size of the down payment, and other variables are not taken into account"

Ding. We have a winner. I'll likely incur the wrath of CG for saying this ... and it is of course a generalization which is dangerous anyway.

But let me just say that in my dealings with subprime borrowers, tenants, etc. as a part-time real estate investor, it became pretty clear to me that many in the AA community treat credit, bills, etc. VERY differently than the rest of us do. One guy just up and moved to Louisiana. Called me and wanted to know if I wanted his house. Quit paying the mortgage once he knew he was moving and it was 3 months behind. No concept of the mortgage, his need to sell it, what it would do to his credit score, etc. That's just one example and from talking to other investors it's pretty standard.

I would be willing to bet $ that on the whole, blacks have lower credit scores than whites. We can get into a discussion of the socioeconomic and cultural reasons that is true, but I guarantee that is the source of this "discrimination".

I bet poor white trash tend to have higher mortgage rates than the typical college educated, middle class white does too.

Tex · 07-26-2007, 11:23 PM

Quote:

Originally Posted by SoCalCoug

I'm guessing if your name is "Jamal" or "Laquisha" they're able to make an educated guess.

That has to be the silliest rationalization for perceived racism I have ever heard.

Quote:

Originally Posted by FMCoug

"... the banking industry says it can be misleading because buyers' credit scores, the quality of the home, the size of the down payment, and other variables are not taken into account"

Seems to be a pretty big oversight, doesn't it. It'll be interesting to see what the investigation turns up.

YOhio · 07-27-2007, 12:30 AM

Quote:

Originally Posted by Tex

That has to be the silliest rationalization for perceived racism I have ever heard.

Steven Leavitt investigates the correllation of African-American sounding names and employment opportunities in his book Freakonomics.

Here's an article that touches on this issue.

http://stlouisfed.org/publications/r...nic_names.html

ChinoCoug · 07-27-2007, 12:40 AM

Quote:

Originally Posted by FMCoug

"... the banking industry says it can be misleading because buyers' credit scores, the quality of the home, the size of the down payment, and other variables are not taken into account"

Ding. We have a winner. I'll likely incur the wrath of CG for saying this ... and it is of course a generalization which is dangerous anyway.

But let me just say that in my dealings with subprime borrowers, tenants, etc. as a part-time real estate investor, it became pretty clear to me that many in the AA community treat credit, bills, etc. VERY differently than the rest of us do. One guy just up and moved to Louisiana. Called me and wanted to know if I wanted his house. Quit paying the mortgage once he knew he was moving and it was 3 months behind. No concept of the mortgage, his need to sell it, what it would do to his credit score, etc. That's just one example and from talking to other investors it's pretty standard.

I would be willing to bet $ that on the whole, blacks have lower credit scores than whites. We can get into a discussion of the socioeconomic and cultural reasons that is true, but I guarantee that is the source of this "discrimination".

I bet poor white trash tend to have higher mortgage rates than the typical college educated, middle class white does too.

I bet even if you control for everything (income, credit score), blacks still get higher rates. The descriptive stats seem to suggest that they do; that's a question we can test easily with regression analysis.

ChinoCoug · 07-27-2007, 12:41 AM

Quote:

Originally Posted by Tex

I don't remember ever indicating my race on any form I gave my lender, and we never met face-to-face. I don't know how he ever would've known whether I was black, white, or anything else.

http://www.sun-sentinel.com/business...,4242870.story

Apparently they know, as 55% of blacks and 45% of hispanics get rates substantially higher than the average, cf only 17% for whites.

Archaea · 07-27-2007, 12:42 AM

Quote:

Originally Posted by ChinoCoug

Apparently they know, as 55% of blacks and 45% of hispanics get rates substantially higher than the average, cf only 17% for whites.

How does that relate to percentages of those races in poverty or with bad credit?

ChinoCoug · 07-27-2007, 12:46 AM

Quote:

Originally Posted by Archaea

How does that relate to percentages of those races in poverty or with bad credit?

it's only suggestive. the DOJ's is going to test it (with a regression, I'm assuming) to control for income, credit score, etc. that's easily done.

i'm just saying the numbers show that it's not that hard to know what race applicants are.

Clark Addison · 07-27-2007, 01:30 AM

With mortgages, finding the race is easy. As part of the mortgage application process, lenders are required by HMDA to gather race information. You can refuse to give it, but most people don't. Obviously, the lender is not supposed to use this data in the underwriting decision, but it is there for analysis afterward.

As people have already mentioned, comparisons are worthless without controlling for credit worthiness. Income or wealth, while correlated with credit worthiness, are far from perfect proxies.

Having said that, I wouldn't be shocked if there was something to this, but it still doesn't mean there was racism. At least not conscious racism. A few years ago I ran a bunch of data on the credit card portfolio of a VERY large financial institution. After controlling for FICO, we saw that:

1. The loss rate for African American card-holders was BETTER than for Whites.

2. The credit lines for AA cardholders were significantly LOWER than for Whites.

The issuer was obviously very worried about this, as it looks fairly damning. I am positive that there was no racism in the assignment of credit lines. Race was not something that was known on the front-end (unlike Mortgages, Credit Card applications aren't subject to HMDa, no race info). Nothing was done in person, and 100% of the credit lines were originally assigned by an automated system. Yet somehow, Whites ended up with better lines.

I was not involved long enough to see the result, so I'm not sure why exactly this happened. It could have been a lot of things. Maybe African Americans don't expect lines as high as whites (or don't trust the Bank as much), so they don't call in and request line increases as often. Maybe, even though their loss rates were lower, their payment patterns of African Americans were sloppier, so they weren't eligible for as many line increases.

Bottom line, these are VERY complicated issues. It's something that needs to be studied, and, if there are problems, they need to be fixed, but data trotted out by politicians rarely add substance to the debate.

07-26-2007, 10:44 PM	#1
Tex Senior Member Join Date: Dec 2006 Posts: 8,596	Blacks paying higher mortgage rates than whites? I heard Edwards reference this study and I couldn't believe it. Is this only in the subprime market (which has had other troubles of late)? Edwards claimed even wealthy blacks were paying more than whites. I don't remember ever indicating my race on any form I gave my lender, and we never met face-to-face. I don't know how he ever would've known whether I was black, white, or anything else. http://www.sun-sentinel.com/business...,4242870.story

07-26-2007, 10:56 PM	#2
SoCalCoug Senior Member Join Date: Aug 2005 Location: Orange County, California Posts: 3,059	I'm guessing if your name is "Jamal" or "Laquisha" they're able to make an educated guess. __________________ Get your stinking paws off me, you damned, dirty Yewt! "Now perhaps as I spanked myself screaming out "Kozlowski, say it like you mean it bitch!" might have been out of line, but such was the mood." - Goatnapper "If you want to fatten a pig up to make the pig MORE delicious, you can feed it almost anything. Seriously. The pig is like the car on Back to the Future. You put in garbage, and out comes something magical!" - Cali Coug

07-26-2007, 11:01 PM	#3
FMCoug Senior Member Join Date: Jan 2006 Location: Kaysville, UT Posts: 3,151	"... the banking industry says it can be misleading because buyers' credit scores, the quality of the home, the size of the down payment, and other variables are not taken into account" Ding. We have a winner. I'll likely incur the wrath of CG for saying this ... and it is of course a generalization which is dangerous anyway. But let me just say that in my dealings with subprime borrowers, tenants, etc. as a part-time real estate investor, it became pretty clear to me that many in the AA community treat credit, bills, etc. VERY differently than the rest of us do. One guy just up and moved to Louisiana. Called me and wanted to know if I wanted his house. Quit paying the mortgage once he knew he was moving and it was 3 months behind. No concept of the mortgage, his need to sell it, what it would do to his credit score, etc. That's just one example and from talking to other investors it's pretty standard. I would be willing to bet $ that on the whole, blacks have lower credit scores than whites. We can get into a discussion of the socioeconomic and cultural reasons that is true, but I guarantee that is the source of this "discrimination". I bet poor white trash tend to have higher mortgage rates than the typical college educated, middle class white does too. Last edited by FMCoug; 07-26-2007 at 11:03 PM.

07-27-2007, 01:30 AM	#10
Clark Addison Senior Member Join Date: Jul 2007 Location: North Carolina Posts: 638	With mortgages, finding the race is easy. As part of the mortgage application process, lenders are required by HMDA to gather race information. You can refuse to give it, but most people don't. Obviously, the lender is not supposed to use this data in the underwriting decision, but it is there for analysis afterward. As people have already mentioned, comparisons are worthless without controlling for credit worthiness. Income or wealth, while correlated with credit worthiness, are far from perfect proxies. Having said that, I wouldn't be shocked if there was something to this, but it still doesn't mean there was racism. At least not conscious racism. A few years ago I ran a bunch of data on the credit card portfolio of a VERY large financial institution. After controlling for FICO, we saw that: 1. The loss rate for African American card-holders was BETTER than for Whites. 2. The credit lines for AA cardholders were significantly LOWER than for Whites. The issuer was obviously very worried about this, as it looks fairly damning. I am positive that there was no racism in the assignment of credit lines. Race was not something that was known on the front-end (unlike Mortgages, Credit Card applications aren't subject to HMDa, no race info). Nothing was done in person, and 100% of the credit lines were originally assigned by an automated system. Yet somehow, Whites ended up with better lines. I was not involved long enough to see the result, so I'm not sure why exactly this happened. It could have been a lot of things. Maybe African Americans don't expect lines as high as whites (or don't trust the Bank as much), so they don't call in and request line increases as often. Maybe, even though their loss rates were lower, their payment patterns of African Americans were sloppier, so they weren't eligible for as many line increases. Bottom line, these are VERY complicated issues. It's something that needs to be studied, and, if there are problems, they need to be fixed, but data trotted out by politicians rarely add substance to the debate.