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  • 16

    What’s Behind the Race Gap?
    Opinion; Posted on: 2007-11-05 18:34:57 [ Printer friendly / Instant flyer ]

    Home Defaults: Lenders say that in general higher rates are justified to account for the bigger risks posed by borrowers who have a poor record at paying bills on time and defaulting on debts.

    High-cost subprime mortgages have often been framed as loans that catered to people with blemished credit records or little experience with debt.

    There has been less attention paid to the concentration of these loans in neighborhoods that are largely black, Hispanic, or both. This pattern, documented in federal loan records, holds true even when comparing white middle-income or upper-income neighborhoods with similar minority ones.

    Consider two neighborhoods in the Detroit area. One, located in the working-class suburb of Plymouth, is 97 percent white with a median income of $51,000 in 2000. To the east, a census tract in Detroit just inside Eight Mile Road has a very similar median income, $49,000, but the population there is 97 percent black.

    Last year, about 70 percent of the loans made in the Detroit neighborhood carried a high interest rate — defined as 3 percentage points more than the yield on a comparable Treasury note — while in Plymouth just 17 percent did.

    Last year, blacks were 2.3 times more likely, and Hispanics twice as likely, to get high-cost loans as whites after adjusting for loan amounts and the income of the borrowers, according to an analysis of loans reported under the federal Home Mortgage Disclosure Act. (Asians are somewhat less likely than whites to take out high-cost loans.)

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