The report, Paying More for the American Dream, a joint research project by six nonprofits, found that the racial disparities in lending outstripped differences in income and credit risk, leaving little room for any conclusion other than that race played into lenders' decisions. According to the report, which studied mortgages in 2005 in New York City, Los Angeles, Chicago, Boston, Charlotte, NC and Rochester, NY:
"Despite controlling for publicly available borrower and lender related factors that may affect pricing, a substantial, unexplained gap remained between levels of higher cost lending to African American and Latino borrowers and white borrowers. This gulf has often been attributed to differences in credit history, loan documentation, and overall wealth between race and ethnic groups. Yet evidence suggests that weak borrower credit profiles do not fully explain why some borrowers get stuck with higher-cost home loans. The Government Sponsored Enterprises, Fannie Mae and Freddie Mac, have estimated that many subprime borrowers could have qualified for lower-cost prime loans. ...Such patterns indicate a dual lending market in which lenders heavily push their higher-cost subprime products to minority markets while excluding those markets from access to lower cost prime mortgage products."
The disparities in loan rates were true in all six cities and for all seven lenders studied: Citigroup, Countrywide, GMAC, HSBC, JP Morgan Chase, Washington Mutual, and Wells Fargo. The starkest example was Washington Mutual, which the report scrutinized in particular detail because the company "operates distinct prime and subprime lending channels, yet sees the vast majority of its loans to African American and Latino borrowers come through its subprime unit."
What's happening, the report concludes, is not simply that lenders show patterns of bias in granting loans, but also that many lenders flat-out avoid black and Latino communities, creating a captive market for the lenders who "serve" these populations. As a result, many black and Latino borrowers with solid credit histories sign on for unnecessarily costly mortgages because that is what is offered where they live.
So the problem is not just old-fashioned "charge-the-colored-person-more" bigotry, but also the abandoning of entire communities of color -- stereotyped as "bad credit risks" -- to the abusive practices of lenders who thrive amid the lack of competition.
All of this begs for oversight and reform. Among the report's recommendations are that lenders who carry out such practices be screened out of major Wall Street investment portfolios; that the feds and the states legislatively prohibit lenders from hitting borrowers with higher-cost loans when they qualify for lower-cost ones; and that federal and state government aggressively prosecute violators. (According to the report, "To date, New York Attorney General Eliot Spitzer has taken the only public enforcement action against a mortgage lender based on HMDA disparities, despite the Federal Reserve Board having identified hundreds of lenders whose data show large differences between the prices paid by racial and ethnic groups and whites.")
So the next time you hear someone adamantly dismiss widespread racial discrimination as "a thing of the past," dare him or her to chew on 21 pages of empirically-established facts. The report, downloadable as a PDF, is written in plain English and can easily be read over lunch.