By Nick Timiraos
July 19, 2012
Seven consumer advocacy groups say their analysis of mortgage data raises questions about whether lenders are steering minority borrowers into government-backed loans that are slightly more expensive than conventional mortgages.
The report looked at lending data disclosed by banks under the 2010 Home Mortgage Disclosure Act. “The findings indicate persistent mortgage redlining and raise serious concerns about illegal and discriminatory loan steering,” according to the report released Thursday.
The majority of government-backed loans are issued by the Federal Housing Administration, which allows borrowers to make down payments of just 3.5% and remains virtually the sole source of low down-payment mortgages for homeowners today.
FHA loans require borrowers to pay mortgage insurance premiums no matter how much equity they have. Conventional loans, meanwhile, typically require mortgage insurance when borrowers have less than 20% in equity. Insurance premiums vary depending on the borrowers’ credit score and other risk factors.
“It’s not that the [FHA loan] isn’t a good product,” said Spencer Cowan, vice president at the Woodstock Institute, a Chicago-based research organization. The problem, he said, is that “to the extent that a borrower who could qualify for conventional financing is instead offered an FHA product, that person is being disadvantaged.”
The report showed that home buyers in minority neighborhoods in Los Angeles received government-backed loans five times as often as those in predominately white neighborhoods. Borrowers looking to refinance in minority communities were 6.5 times more likely to receive FHA or other government-backed loans than those in predominately white neighborhoods.
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