Overview
Pricier loans add up to tens of thousands of dollars more in costs than for white borrowers, according to an analysis of Bank of America, Citibank and Chase lending.
Redlining and Banking Deserts
The Consumer Financial Protection Bureau has pointed out that Black and Hispanic borrowers overall have lower credit scores than white borrowers, which may help explain certain disparities in lending rates and decisions. Lower credit scores may lead to higher interest rates and rates of refinancing denial for borrowers of color.
Study Reveals Interest Rate Disparities
A new analysis of loan data by The New Economy Project, a racial and economic justice advocacy group, found that three major banks charged Black homeowners in New York City more interest on their mortgages than they did white borrowers. At Bank of America, Citibank, and JP Morgan Chase, white borrowers received interest rates of 3.77% on average compared to 4.13% for Black borrowers between 2018 and 2023. Other non-white borrowers received an average interest rate of 3.83% during that time period.
Disparities Will Result in Higher Costs
The discrepancies will result in Black homebuyers paying an estimated $31,200 more in interest on average over a 30-year mortgage compared to white buyers, the analysis found.
Refinancing Denials
Further, the analysis found that the three banks denied Black homeowners refinancing almost twice as often as white homeowners. Nearly a quarter of Black homeowners were rejected when they tried to refinance, compared to just under 13% of white homeowners.
Expert Analysis
"Black borrowers are getting stuck with those higher interest rates during times of generally higher interest rates, and then interest rates fall and they try to refinance, but they can’t, while white borrowers can," said Will Spisak, a senior program associate with the New Economy Project.
Bank Criticisms
Bank of America and Citibank declined to comment. JP Morgan Chase criticized the analysis, saying it "ignores key factors like borrowers’ credit scores or properties’ loan-to-value ratio."
Conclusion
The study’s findings highlight the need for increased understanding of the mortgage lending process, particularly in terms of the role of credit scores and loan-to-value ratios. While some lenders are working to address the issue through alternative credit scoring and mortgage programs, more needs to be done to ensure equal access to affordable home lending for all.
Frequently Asked Questions
Q: How did the study analyze the data?
A: The study crunched data lenders provide to comply with the federal Home Mortgage Disclosure Act, which shows home lending activity for each census tract by race of the borrower.
Q: Why do credit scores and loan-to-value ratios matter?
A: Lenders take credit scores and loan-to-value ratios into account when determining whether to lend and the terms of the loans.
Q: How can prospective homebuyers compare their interest rates to others?
A: Prospective borrowers can keep an eye on mortgage rates using tools like Bankrate’s history tracker and Freddie Mac’s survey.
Q: What can be done to address the issue of racial disparities in mortgage lending?
A: Advocates call for the creation of a public bank to hold municipal deposits and facilitate lending at affordable rates in lower-income, majority non-white neighborhoods.
