Report Highlights Boston Mortgage Discrimination

Are minorities across the nation a target of mortgage loan discrimination? If this story from the Boston Globe is any indication, it looks like it.

Blacks and Latinos in greater Boston were denied loans at the highest rates since the early 1990s, when minority Massachusetts mortgage rejections sparked charges of racism in the city’s lending industry.

• In 2006, 30.8 percent of blacks and 26.5 percent of Latinos were rejected for a mortgage to purchase a house, compared with 13.1 percent of whites, according to annual data released yesterday by federal regulators.

• While rejection rates for all borrowers, including whites, increased last year, increases were larger: In 2004, 20.6 percent of blacks, 19.5 percent of Latinos, and 10.1 percent of whites were rejected.

Denial rates for those looking to refinance home loans were higher still: 34.5 percent of black applicants in the Boston area were rejected in 2006, as were 34.8 percent of Latinos and 22.5 percent of white applicants.

Rejection rates in Boston are comparable to those elsewhere in the nation, and a similar pattern was found in other parts of the state.

While the data show increasing racial disparity in the mortgage market, lenders and housing market analysts said a far more complex issue than racism explains why rejection rates returned to such high levels.

One reason is that the real estate boom induced more people with bad credit scores, including minorities, to enter the housing market to buy property; a greater number of unqualified applicants results in a higher rejection rate.

A boom in the bad credit mortgages offered to borrowers with poor credit, which peaked in 2006, also played a critical role, because subprime home loan lenders typically reject many more applicants.

Subprime lenders deny more applicants “because they troll broadly and encourage anybody and everybody to apply,” said one mortgage analyst.

“Their marketing is, ‘Come to us. We say yes.’ In fact, they don’t - their denial rates are higher,” he said.

The subprime lending industry peaked in 2006 with more than $600 billion in mortgage loans, but has since imploded as many borrowers found they could not afford these expensive mortgages, sparking a rise in foreclosures.

Continue reading this Boston Globe examination of predatory practices relating to minorities and mortgage lenders …