Blacks and Hispanics have been treated better by the mortgage industry in recent years, but a survey indicates that much of the new lending to blacks appears to come from subprime mortgages, loans with higher interest rates.

Officials of the National Community Reinvestment Coalition, in releasing the study, said they were concerned that after a few years of progress starting in 1994, the gap between minorities and whites being denied home mortgages widened again in 1996-97.

The NCRC's report comes just two weeks after another activist group leveled charges the lending industry discriminates and one week after the Mortgage Bankers Association of America launched its own independent research organization designed to improve access to home loans for minorities and low-income people.

"We see some disturbing things happening along racial lines," John Taylor, the group's president and chief executive officer, told reporters.

The study was based on data submitted to the federal government by banks, thrifts and mortgage companies. A similar study by the federal government last summer showed similar results -- that financial institutions are turning down blacks, Hispanics and American Indians for home mortgage loans more often than whites, no matter what their income.

The flaw, those in the industry point out, in all these studies is they do not take into account criteria like credit histories, a crucial element in approving or turning back a mortgage loan.

The banking industry maintains that lenders continue to seek qualified borrowers in minority communities.

"It's not only good public policy, it's good business," said Donald Lange, president of the Mortgage Bankers Association of America.

Stephen Hornburg, executive director for the Research Institute for Housing America, the first national independent research organization devoted to expanding housing and mortgage markets to all Americans, agreed.

"We have made substantial progress in eliminating barriers to housing choices and homeownership,"Hornburg said.

The new NCRC study also examined fast-growing subprime home loans, designed for borrowers with weaker credit records who are considered higher risks and cost lenders more.

It found that 19 percent of all single-family home loans to blacks -- including mortgages, refinancing and home improvement -- were subprime, compared with 6.9 percent of such loans to whites and 8.6 percent to Hispanics.

"Blacks are the best customers of subprime lenders," said Maurice Jourdain-Earl, a consultant who helped conduct the study.

He and Taylor questioned whether black consumers, who they said are more likely than whites to be offered subprime loans, are being unfairly targeted for the higher-rate loans.

However, they acknowledged it is impossible to prove racial discrimination by subprime lenders, since the black applicants' creditworthiness isn't included in the data and it isn't known whether they would have qualified for a standard loan.

Compared with the standard home mortgage rate of around 6.5 percent to 7 percent, subprime loans can run from over 8 percent to as high as 15 percent, and they often are loaded with extra fees.

With commercial banks tightening consumer credit standards for standard loans in recent years, the subprime business has grown phenomenally. The subprime lending market is estimated at $200 billion nationwide and has been growing by as much as 50 percent a year.

As the industry has grown, critics allege, so has the rise in unethical opportunists who take advantage of people ready to jump at the first offer of a home loan.

"They're preying on the ignorance of poor people," Taylor said.

The banking industry says subprime loans offer an opportunity for people who are high credit risks to own a home.

According to the NCRC study, subprime lenders last year turned down an average 33 percent of all applicants for home loans, with denial rates nearly the same for whites, blacks and Hispanics in the 20 big metropolitan areas surveyed. For standard loans, the average denial rate was 15 percent.

Published: November 30, 1998

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