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Wednesday, Jul 17, 2024

Minorities Paying High Mortgage Rates, Advocacy Group Study Finds

Minorities are paying more for real estate and business loans.

The California Reinvestment Coalition, which advocates for the rights of low-income and minority communities to obtain equal access to banking and other financial services, said in a report this year that residents in minority neighborhoods are more than four times as likely as their counterparts in mainstream neighborhoods to receive costlier home loans.

Kevin Stein, associate director of the coalition and author of the report, said while San Diego was less likely than other cities such as El Centro and Los Angeles to have a large percentage of loans that are higher-cost, high interest loans are much more likely to be made to African Americans and Latinos in San Diego.

“Expensive loans equal lost equity and lead to less wealth building in the communities that need it the most,” said Stein.

The coalition found that the average higher-cost borrower paid $610 more per month on mortgages. Moreover, minorities paid $109 million more per month or more than $1.3 billion more per year on their home loans than mainstream borrowers.

“The fact that people of color are much more likely to receive more costly loans from the nation’s largest lenders offends our sense of justice and fairness,” said Stein. “The Federal Reserve and other bank regulators must restore America’s confidence in the notion that all residents will pay a fair price for their home loans regardless of what they look like or where they live.”

A Different Perspective

Joe Schroeder, president and chief executive officer of San Diego Metropolitan Credit Union, said the real question is whether ethnic groups with similar credit histories and similar credit scores are receiving higher-cost loans.

“I don’t think these numbers by themselves indicate there is a bias,” said Schroeder. “If they could show the public that people of different ethnic groups that had identical FICO scores were getting different loan rates at the same institution that would be much stronger evidence.”

Despite ethnicity, lower income borrowers generally have lower credit scores and thus are deemed higher risks, he said.

“It is tougher for them to get loans and it is tougher for them to get a part of the American dream,” he said.

One San Diego business is offering the Latino market a more affordable American dream by offering loans tailored to the culture and unique characteristics of this community.

The Hispanic National Mortgage Association is working to increase Hispanic homeownership by offering lower-increase rate loans based on willingness to pay debt, not just credit scores.

Ron Jauregui, a senior vice president at HNMA, said Latinos have different ways of building credit.

“If you come from a community that does not view taking on unnecessary debt very favorably or doesn’t like to use credit cards or maybe does not have access to credit cards, then by default your credit score is low and if you have a lower score you get charged more because the lower score implies a greater risk,” he said.

The problem is that traditional credit scoring does not account for the cultural differences, he said. “The main cause of them being under-served, mispriced or overpriced is that they are not accurately gauged or measured in terms of their true credit worth,” he said.

Because of this high-risk assessment, many Hispanics end up with high interest loans.

HNMA recently teamed up with Wells Fargo Mortgage in a joint venture to focus on the Hispanic market. The joint venture, Ilumina Mortgage LLC, offers traditional mortgage lending products and services to minorities.

Ilumina has loan officers in San Diego and plans to open its first office in Fontana this month.


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