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Real estate market remains biased.

Wealthier minorities are more likely to receive subprime loans than affluent whites, according to a New York University study of the Home Mortgage Disclosure Act. Moreover, black and Latino applicants are mere likely to be denied prime loans--even after controlling for gender and income.

"These findings offer strong evidence for the continuing significance of race in one specific, but crucial, aspect of the housing market: the mortgage application process," claims Jacob Faber, a doctoral fellow at NYU's Furman Center for Real Estate and Urban Policy.

"The historical absence of affordable credit in communities of color and for applicants of color, which created a market void into which subprime lenders grew, was not accidental. While it is not possible, in this study, to identify personal prejudice on behalf of lenders, racial disparities in subprime lending are nonetheless part of a long trajectory of structural, race-based disenfranchisement."

His dataset consisted of 3,819,923 loan applications, of which 1,590,267 (41.63%) were denied, 2,023,247 (52.97%) were approved with a prime rate, and 206,409 (5.40%) were approved with a subprime rate (i.e., an interest rate three or more points above the Federal Treasury rate).

An analysis of these loans showed that black home-purchase mortgage applicants are 2.8 times more likely, Latinos two times more likely, and Asians 1.1 times more likely to be denied a loan than are whites alter controlling for borrower, loan, and geographic factors. However, across all racial groups, income is associated positively with loan approval--in other words, the wealthier the applicant, the more likely that applicant was approved for a loan.

However, upon approval, even wealthier black and Latino applicants received less-advantageous loan terms than did their white counterpads. Once they cleared the loan-approval hurdle, black and Latino applications were 2.4 times more likely to result in a subprime loan than were whites. By contrast, Asians were 28% less likely than whites to be offered a subprime loan.

"Lenders have argued that subprime loans, with their higher costs, were intended to pass more of the risk along to borrowers they deemed less likely to meet the repayment schedule of a mortgage loan, but these findings don't substantiate lender claims that subprime loans were for riskier borrowers--higher incomes, regardless of race, should have indicated lower risk for the lender and less need for a high-cost loan."

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Title Annotation:Your Life
Publication:USA Today (Magazine)
Geographic Code:1USA
Date:Sep 1, 2013
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