The challenges minorities face in America

By Warren Flowers Staff Writer

For a majority of Americans, buying a home is either a dream come true, or an accomplished goal. The process of homebuying is a long and stressful one that includes finding a lender, securing a home loan, finding a home, and beginning the buying process. By the end of the process, many homeowners are happy it is over.

The truth is that many potential minority buyers should question the process, especially the rates offered. Multiple sources report that minorities pay higher interest rates than others.

Racial bias in the mortgage industry results in millions of dollars in extra payments for Black and Latino borrowers, according to a recent study conducted by UC Berkeley. The study found that 1.3 million credit-worthy Black and Latino applicants were denied between 2008 and 2015. This result includes higher interest rates and unfair lending practices.

Black and Latino borrowers pay nearly 0.08% higher interest rates than their White counterparts.

A loan for $429,000 cost one minority homeowner $640 more over the life of the loan. A calculation like this adds up to an extra $765 million in payments that minority borrowers have made over the years.

According to Raheem Haifa of Harvard University’s Joint Center for Housing Studies, Black homeowners with incomes between $75,000 and $100,000 had higher interest rates than White homeowners with $30,000 or less in household income.

Even at the highest levels of income, Black median interest rates were still slightly higher than those of White homeowners with lower incomes.

This bias is not limited to the mortgage industry. Sarah Meyers West, of New York University, explained that machine learning systems are trained on large data sets to identify patterns within the data that are used to predict future outcomes. These systems can be biased if the data they are trained with are not diverse enough.

Bias in the mortgage industry not only leads to higher interest rates but also results in the dismissal of credit-worthy applicants. Mortgage companies charge higher interest rates for perceived risk factors like high loan-to-value ratios and low credit scores.

This practice causes the average Black homeowner’s interest rate to be 33 basis points higher than that of the average white homeowner. Consequently, black homeowners pay roughly $250 more annually in interest charges.

The effects of this bias are felt far beyond individual homeowners. The housing market is a major driver of the economy, and this bias has led to a lack of investment in minority communities. This, in turn, has resulted in lower home values and reduced economic opportunities.

Despite the housing industry’s sluggish response, some organizations are making efforts to address the issue. The National Association of Real Estate Brokers (NAREB) has been promoting fair lending practices for over 70 years. NAREB has collaborated with the Consumer Financial Protection Bureau (CFPB) to develop new guidelines for lenders that prohibit discrimination against minority borrowers.

Bias in the mortgage industry has led to Black and Latino borrowers paying millions of dollars in extra payments. To address this issue, the industry must take steps to ensure the fair treatment of all borrowers. This will not only benefit individual homeowners but also increase investment in minority communities, leading to a stronger economy for all.