Takeaways:
- Researchers at Florida Atlantic University (FAU) found “widespread” racial disparity in what black and white borrowers pay for mortgage rates.
- This study, written by researchers at FAU’s College of Business, investigates whether African-American applicants are charged higher interest rates than their white counterparts.
- The study further found that this disparity disproportionately affects young black borrowers with low levels of education and black women.
A new study by researchers at Florida Atlantic University (FAU) finds “widespread” racial disparity in what black and white borrowers pay for mortgage rates.
Racial discrimination in mortgage lending is unfortunately not a new topic, as many studies have examined whether minority mortgage applicants are more likely to be denied access credit than Caucasians.
But this study, written by researchers at FAU’s College of Business, investigates whether African-American applicants are charged higher interest rates than their white counterparts.
Dr. Ping Cheng
“When all the traditional variables are controlled — similar mortgage product, similar income level, similar education level, similar shopping behavior — blacks overall as a group end up paying a higher rate on average,” said Dr. Ping Cheng, a finance professor at the college and lead author of the study, which was published in the July 2015 issue of The Journal of Real Estate Finance and Economics.
Diving deeper into that broad category of borrowers, the study further found that this disparity disproportionately affects young black borrowers with low levels of education and black women. The latter are charged 57.36 basis points, or 0.5736 percent, more than their white counterparts, the study found.
To put it into plain terms, Cheng’s team said that on a typical, $250,000, 30-year mortgage at the current prevailing rate of 3.75 percent per year, black women may pay an extra $82.86 per month.
“We find that generally the low-income black women who are heads of households pay the highest. They are the most vulnerable to subprime lending and higher mortgage rates,” Cheng said.
Cheng noted that empirical studies like this one suggest only correlations, and are unable to make any conclusions about why such discrepancies exist. However, the professor added that this study’s findings suggest the risk perception for lower-income black women is worse than that for white borrowers with comparable income and credit quality.
“We can only say this high-rate discrepancy is consistent with the behavior of racial discrimination, but we cannot say it is the result of racial discrimination,” Cheng said.
