Report raises questions over “Racial Lending Disparities?”

Seven consumer advocacy groups say their analysis of mortgage data raises questions about whether lenders are steering minority borrowers into government-backed loans that are slightly more expensive than conventional mortgages.

The report looked at data disclosed by banks under the 2010 Home Mortgage Disclosure Act. “The findings indicate persistent mortgage redlining and raise serious concerns about illegal and discriminatory loan steering,” according to a recent report.

The majority of government-backed loans are issued by the Federal Housing Administration, allowing borrowers to make down payments of 3.5% and remains virtually the sole source of low down-payment mortgages for homeowners today.

FHA loans require borrowers to pay mortgage insurance premiums no matter how much equity they have. Conventional loans, meanwhile, typically require mortgage insurance when borrowers have less than 20% in equity. Insurance premiums vary depending on the borrowers’ credit score and other risk factors.

“It’s not that the [FHA loan] isn’t a good product,” said Spencer Cowan, vice president at the Woodstock Institute, a Chicago-based research organization. The problem, he said, is that “to the extent that a borrower who could qualify for conventional financing is instead offered an FHA product, that person is being disadvantaged.”

More information at source: http://blogs.wsj.com/developments/2012/07/19/report-raises-questions-over-racial-lending-disparities/