Study finds minorities pay higher loan rates

In Brockton and Randolph, some home buyers pay more for mortgages because they have specialized loans with higher interest rates than conventional ones, according to a recently released report on what is known as ''subprime" lending. It speculates that a disproportionate number of such loans are offered in communities with large minority populations, but offers no conclusions.

The report, entitled ''Borrowing Trouble? V," was prepared by Jim Campen of the Mauricio Gaston Institute for Latino Community Development and Public Policy at the University of Massachusetts at Boston. It is the fifth installment in a series sponsored by the Massachusetts Community & Banking Council.

The council, which is made up of bankers and community representatives, began studying mortgage lending in Greater Boston in 2001, in response to reports about the growth of so-called predatory lending, which is characterized by deceptive sales practices targeting vulnerable borrowers.

Subprime loans are often offered to borrowers with tarnished credit histories, and carry higher rates and less desirable terms than prime, or market-based, loans because lending institutions consider the borrowers less reliable. The council's report said that while interest rates on subprime loans are higher than market rates, they do not have the egregiously high interest rates and fees of predatory loans.

According to the study, out of 1,750 home purchase loans granted in 2003 in Brockton, 29.9 percent were categorized as subprime, as were 23.7 percent of the 6,341 refinancing loans processed in the city that year. Brockton had among the highest percentages of subprime loans in the state, along with Lawrence, New Bedford, and Springfield, all urban centers with large minority populations. Brockton's population is 17.8 percent black, 8 percent Latino, and 2.2 percent Asian, according to census figures.

In Randolph, the percentage of subprime loans for both home purchase and refinancing loans also was high, according to the study. Of the 639 purchase loans granted in 2003, 18.5 percent were subprime, as were 13.8 percent of the 2,593 refinance loans, it found. Randolph is 21 percent black, 10 percent Asian, and 3 percent Latino, according to 2002 census figures.

Although the report cannot prove discrimination, it is possible that some people of color are being given subprime loans even though they qualify for better terms, said David Harris, who is executive director of the Fair Housing Center of Greater Boston and vice chairman of the Massachusetts Community & Banking Council.

''I think these products are being marketed quite aggressively, and there is some indication that the marketing might be more aggressively done in some neighborhoods," said Harris.

''The challenge to those of us concerned about this is to look beneath those data and find out what's really leading to it," he said.

''The other piece we need to ask ourselves is, if those people are qualified for prime loans, what's happening? Why aren't they getting those prime loans?"

But another David Harris, who lives in Randolph and has worked on fair housing issues in town for years, cautions that ''we can't throw the baby out with the bath water."

''We have to look at a fine line between what is acceptable and what is not. We can't lump everything into one," he said. ''If you look at a lot of people who have gotten subprime loans, if they benefited from it and later on were able to qualify for a prime loan after two years, they were able to get a home and bridge that gap. So a lot of research has to be looked at before a conclusion is made that subprime loans is a terrible thing versus prime."

The kind of loan a consumer gets can make a big difference in monthly mortgage payments and what they end up paying for their home, said Thomas Callahan, who is executive director of the Massachusetts Affordable Housing Alliance.

''One of the concerns about this whole market being relatively unregulated is that subprime lenders try to get you as high a rate as they can get you into," said Callahan. ''Often they are dealing with people with damaged credit. They play on that desperation."

But Esther Schlorholtz, community reinvestment officer for the Boston Private Bank, which she said offers only prime loans, said subprime loans sometimes are the best option.

''Those borrowers who have credit history issues and can't get loans on the prime market because of that history are able to access credit," she said.

''Unfortunately, what this study by the Massachusetts Community & Banking Council has shown is that with the subprime lenders there tends to be a focus on financing minorities regardless of income," Schlorholtz said.

Consumers have to be more aware of loan terms and rates offered by banks, credit unions, and mortgage companies before signing any paperwork, Callahan said.

''There are a lot of small things that can cost you money."

Sandy Coleman can be reached at sbcoleman@globe.com