A new LendingTree report that studied mortgage lending in 50 of the largest US metros suggests that despite historically low interest rates, Black borrowers often receive a disproportionately larger share of higher-than-average interest rates than the general population when taking out and refinancing a mortgage.
The report, which analyzed Home Mortgage Disclosure Act data from 2019, defined a “high cost mortgage” as a home loan with an annual percentage rate higher than the average prime offer rate, as defined by the Federal Financial Institutions Examination Council.
In Boston, 2.45 percent of all mortgages were high-priced, but 6.88 percent of Black applicants got high-priced mortgages, a disparity of 4.43 percent. It was the sixth smallest disparity in the study. “Cleveland, Detroit, and Milwaukee are the metros with the widest spread between the overall share of high-cost mortgage loans and the share of high-cost mortgage loans taken out by Black homeowners,” according to the report. San Antonio, San Diego, and San Jose had the smallest.
The average disparity across all metros was 8.99 percent for purchase mortgages. The disparities were smaller for Black borrowers who refinanced their existing mortgage, according to the report.
In Boston, according to the report, 1.7 percent of all refinances were high-cost, but 2.73 percent of Black homeowners refinancing their mortgage got high-cost loans. The 1.02 percent disparity was the 11th lowest of the metros surveyed. “In Kansas City, Mo., Phoenix, and Denver, the spread between the overall share of high-cost refinance loans and the share of high-cost refinances loans taken out by Black homeowners is the widest,” according to the report. The two metros were Black homeowners were less likely to receive a high-cost refinance were Chicago and Detroit.
Bob Credle, director of Community Programs at Urban Edge, a community development nonprofit in Roxbury, said those numbers don’t surprise him. Most of the prospective home buyers his group counsels are Black and first-generation buyers, he said, and they come to him with almost no understanding of the complexities of mortgages.
“Not every banker, but the bankers’ first choice in many instances is to put them into a [Federal Housing Administration] loan,” Credle said. “Bankers make more money writing FHA loans, and they’re easier to write. The incentive is to put our customers in FHA loans when that’s not always the best solution for them.”
He said Urban Edge offers eight-hour home buying classes to all prospective buyers for $25. Buyers hear from eight experts on different facets of home buying, from how to find the best mortgage to how to hire a real estate attorney.
“They get everything they need to buy a home without being taken for a ride,” he said.
Gercide Luc, associate director of community programs at Urban Edge, said many students come to classes not knowing how important it is to shop around for the best mortgage rate or the financial strategies to improve their credit scores and qualify for better rates.
“The classes expose them to so much information they wouldn’t otherwise have,” she said. “People don’t realize that they can’t just walk into a bank and get the best loan available. It is about empowering buyers with information.”