It was Friday and the world's best loan officer was on the line:

"Hey, rates are down again. Want to refinance? he asked.

You bet.

It would seem that the matter of picking a mortgage is largely guided by just a few baseline issues: What's the monthly cost? What's the total projected expense over the life of the loan? What's the up-front cash cost? Can I prepay in whole or in part and without penalty at anytime? Can the rate change during the life of the loan? Are there any "gotcha" clauses? Etc.

But for many people financing and refinancing involves something more than numbers and percentages.

According to Vada Hill, Fannie Mae's Senior Vice President and Chief Marketing Officer, the mortgage industry has traditionally viewed borrowers by their status as first time buyers, repeat buyers or those refinancing.

"In terms of needs, motivations and fears," says Hill, "there are many more similarities than differences among these three groups."

But the choice of a loan -- and a lender -- is actually more complex. Many borrowers are motivated by factors other than such customary measures as rates and terms.

A nationwide study of 9,300 consumers by Hill, including more than 700 African-American and 600 Hispanic households, shows that borrowers can be placed in six categories:

1. Financially Challenged
2. Affluent, Angry and Ignored
3. Technophiles
4. Friends and Family
5. Technophobes
6. Financially Confident

Within these groups there are differences between whites, African-Americans and Hispanics. Among various findings, Hill's study shows found that "the motivator of 'Getting a Yes' is of critical importance to African-Americans in shopping for a home loan."

The desire to get a "yes" leads to three marketplace realities for African-Americans, says Hill.

"First an aversion to using their bank as the vehicle for obtaining a mortgage."

"Second, an overwhelming reliance on the Realtor and mortgage broker."

"Third, the criticality of working with someone of the same race in this process."

In effect, the Hill study says that psychology is important. People want a loan approval, they'd like the best possible mortgage but they want something more: They want to be respected, they want to be treated fairly and they want their dignity.

The result of such perspectives is that some borrowers will pay higher rates because getting to yes -- institutional acceptance -- is as much or more of a priority then getting the best possible rate and terms.

Why does this happen?

You can see in Hill's findings a reflection of the realities which long dominated the lending process. In the not-too-distant past, getting a mortgage was an effort where race, religion and nationality were barriers to approval.

For example, basic appraisal textbooks were updated in 1977 to say that "it was once common practice to examine the racial, religious or ethnic composition of a neighborhood in an effort to detect any sign of nonconformity or change. Such an approach is now regarded as misdirected and the use of factors relating to the racial, religious or ethnic composition of a neighborhood in arriving at a conclusion of value is now deemed an unreliable practice." (See: "Appraisers Institute Settles Suit," The Washington Post, Nov. 19, 1977)

In 1980, an industry policy statement concluded that "the value attributed to the property is not dependent upon the homogeneity of racial, religious or ethnic characteristics of the neighborhood...and the lack of such homogeneity in a neighborhood does not cause a diminution of value." (See: "Agreement Set In Rights Case Against Lenders," The Washington Post, Jan. 26, 1980)

In other words, race, religion and such had been routinely used to determine home values. Values were lowered when neighborhood demographics changed. Such things were not folklore, rumor, legend or hearsay; they were real, the standards of the day.

The policies of the past impact us now. In Texas, for example, a 2002 study by Consumers Union found that "among borrowers earning more than $60,000 annually and borrowing less than 2.5 times their reported income, 16.7 percent of Whites refinanced using a high-cost subprime company, 30.9 percent of Hispanics and 46.9 percent of Blacks. Consumers Union found very high subprime penetration rates (exceeding 40 percent) among upper income Black borrowers refinancing homes in predominantly Black neighborhoods."

It might seem as though past discrimination is now ancient history, but there's plainly less inter-generational abundance to pass on when the assets of those who came before were devalued for discriminatory reasons, something reflected in today's household wealth numbers.

"In 2000," says the Census Bureau, "the household median net worth was $79,400 for households with a non-Hispanic White householder, $7,500 for households with a Black householder, and $9,750 for households with a Hispanic householder."

Hill's point, of course, is that lender marketing efforts cannot be maximized without understanding the motivations and history which drive today's borrowers. There's more to such motivations and history, as Hill explains, than one's status as a new buyer, move-up purchaser or someone seeking to refinance.

For more articles by Peter G. Miller, please press here.

Published: March 16, 2004

Use of this article without permission is a violation of federal copyright laws.

Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .