Fed probes mortgage rates

More than half of black Americans who bought a home in 2005 received a high interest rate on their mortgage loan, compared with 17 percent of whites, according to a federal report released Friday.

The report by the Federal Reserve adds to the image of a nation where people increasingly purchase homes with high-rate loans.

One in four purchase loans last year carried a rate of about 8.percent or more. Such subprime loans, supposedly reserved for people with financial problems, were used by less than 1 in 20 borrowers a decade ago.

The rise of high-rate lending has expanded home ownership, particularly among lower-income families. But it has also saddled some with unaffordable debt. The resulting foreclosures can devastate neighborhoods.

The report, based on data from thousands of lenders, is careful to say the racial disparities don't prove discrimination.

The data do not include credit scores or other financial information. Blacks on average have more credit problems and less wealth. Lenders say pricing is based on these risk factors and that race is not considered.

"It's very disappointing to us to see (that gap) because banks are doing a lot" to help minority borrowers, said Fritz Elmendorf of the Consumer Bankers Association. He cited community development and financial literacy programs.

But the Fed report says discrimination may be part of the explanation. While acknowledging the economic disparities, it says more research is required to determine if they explain the entirety of the gap.

There is already a mountain of research on both sides of the issue. Several federal reports have concluded discrimination is still a factor in lending.

In a report this summer, the Center for Responsible Lending found blacks received high rates more often even considering most of the financial factors lenders say they use to set prices.

"It's time for policy makers to step in and help remedy this problem," said Keith Ernst of the Durham-based group, which advocates for increased regulation of the lending industry.

Federal regulators will review lending by 270 companies to see if discrimination affected their pricing decisions, a Fed spokeswoman said. The companies were flagged because of racial disparities in their lending records. A similar review of 200 companies based on the 2004 data is ongoing, she said.

The study released Friday looked at almost 16 million mortgage loans, using a minimum threshold for a high-rate loan that rises as rates increase.

The study found 54.7 percent of home purchase loans to blacks carried a high interest rate. For Hispanic borrowers, the share was 46.1 percent. For white borrowers, the share was 17.2 percent.