If you’re poor, your mortgage rate can depend on the color of your skin
The following piece is from The Washington Post. It was written by Jeff Guo.
By: Jeff Guo
A new study finds that black borrowers were 50 percent more likely to have overpaid for their mortgages between 2004-2008. Here’s why.
Earlier this year, Ta-Nehisi Coates published a cover story in The Atlantic called “The Case for Reparations.” Much of the article is a chronicle of U.S. housing policy, and for good reason: America has a nasty history of denying homeownership to black citizens.
For decades, restrictive covenants kept black people out of white neighborhoods, while redlining prevented black people from getting mortgages in black neighborhoods. These stories bear repeating. Government housing policies in the 20th century helped white America buy homes and build wealth, forming an escalator to the middle class. Many black Americans were never allowed a ride.
Civil rights legislation was supposed to fix these issues, but racism persisted. In 1992, the Boston Fed released a study showing continued discrimination among mortgage lenders. “[E]ven after controlling for financial, employment, and neighborhood characteristics,” the authors wrote, “black and Hispanic mortgage applicants in the Boston metropolitan area are roughly 60 percent more likely to be turned down than whites.”
The Boston Fed paper launched a flock of Justice Department investigations. Legislation was revised to make minority access to credit a priority. In recent decades so much attention has been paid to fair housing and fair mortgage lending that it gave birth to a myth that lax loans to minorities caused the housing crash. That argument has largely been debunked, but it speaks to a perception that the government has tried hard to wring racism out of a system that ran on it for such a long time.
The research shows, though, that racial differences remain in America’s mortgage market.
A recent working paper from the National Bureau of Economic Research found that between 2004-2008, African Americans were 54 percent more likely to be charged high interest rates on their mortgages. Previous studies have pointed out these differences, but this paper is particularly notable for the range and the richness of its dataset.
The major obstacle to any analysis is that minority homebuyers are poorer, on average. They have lower credit scores and patchier credit histories. So to make a fair comparison, all of these characteristics need to be taken into account.
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