Are Lenders Discriminating?

The government reported on Wednesday, October 1, 2009, that nearly one out of every three loan applications for a mortgage was denied last year. This is partly due to massive changes in the lending industry as a result of the housing market bust. However, what is interesting is that the denial rates for African Americans and Hispanics were nearly twice as much as the white borrower.

Recent records have shown that blacks and Hispanics are borrowing more from FHA-insured loans. This just illustrates that these race groups cannot borrow from any of the private sectors and must look for other available options. Borrowing from a FHA-insured loan means that these two race groups will likely experience high-priced loans. Last year, about 17 percent of blacks and 15 percent of Hispanics got high-priced loans, compared with about 7 percent of whites.

However, the mortgage industry claims that lenders are not being discriminated by race. The industry insists that it is due to the borrower’s credit scores and the size of their down payments. This may be true but the disappearance of “piggyback” mortgages has played a huge role in the lending problem. The “piggyback” mortgage allows borrowers to use a second mortgage to avoid making a 20 percent down payment. Today, they are non-existent. Only 98,000 were made last year, down from 1.3 million annually in 2006. Without these “piggyback” mortgages and with our unstable economy, every race is finding it more difficult to finance their mortgages. It just so happens that blacks and Hispanics are suffering the worst.