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| A staff report from the Federal Reserve indicated that minorities often received lower mortgage rates than whites. The study suggested that the net impact from subprime lending in areas with high concentrations of minorities and high unemployment was positive.Black and Hispanic borrowers saw subprime rates that were about 2.5 basis points better than for other borrowers, according to Subprime Mortgage Pricing: The Impact of Race, Ethnicity, and Gender on the Cost of Borrowing from the Federal Reserve Bank of New York.
Margins on ARMs were as much as 5 BPS better for blacks and Hispanics. No disparity by gender was identified in the report. “We find no evidence of adverse pricing by race, ethnicity, or gender in either the initial rate or the reset margin,” authors Andrew Haughwout, Christopher Mayer and Joseph Tracy wrote. “Indeed, if any pricing differential exists, minority borrowers appear to pay slightly lower rates, as do those borrowers in zip codes with a larger percentage of black or Hispanic residents or a higher unemployment rate.” More than 75,000 first-lien adjustable-rate subprime mortgages were analyzed using a new data set that merged Home Mortgage Disclosure Act demographic information — including race, ethnicity and gender — with loan data from LoanPerformance including mortgage pricing and risk variables. The report focused only on originations from August 2005, which was the peak production month for subprime. It only included data on 2-28 hybrid ARMs, which accounted for 53 percent of all subprime loans at the end of 2007. No data about points and fees was available. In addition, the report was unable to identify borrowers with subprime mortgages who might have qualified for conforming programs. Loans in zip codes with higher concentrations of Asians, blacks and Hispanics were cheaper, as were loans in areas that had higher unemployment or previously had higher rates of appreciation. Areas with concentrations of Hispanics and Asians previously had higher rates of appreciation, while black areas had lower appreciation. “These results suggest the possibility that subprime lending did serve as a positive supply shock for credit in locations with higher unemployment rates and minority residents.” |
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