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Minority Homeowners Pay More for Their Mortgages

Mortgage lenders sell a -disproportionate share of high-cost, or subprime, home loans to blacks and other minorities in big cities across the US, according to two new reports.

A study conducted by the Woodcock Institute, a Chicago-based organization that promotes community development, and four other groups found that home loans are more expensive for minorities in Boston, Charlotte, Chicago, Los Angeles, New York City and Rochester, New York.

In these six cities, blacks were 3.8 times more likely to receive a higher-cost home loan than were white -borrowers, while Latinos were 3.6 times more likely than white borrowers to receive a higher- cost loan. Subprime loans - mortgages tailored to homebuyers with poor credit ratings - typically have interest rates at least 3 percentage points above regular mortgages.

Subprime loans have attracted heightened scrutiny in recent weeks as defaults on US mortgages have increased and banks that specialize in these products have imploded.

"It's the ugly geographic pattern that we've seen before," said Paul Collier, the director of litigation for Harvard Law School's clinical program as well as a trial lawyer mostly representing lower-income clients. "Subprime lending is narrowly focused on neighborhoods of color."

The study focused on lending by Citigroup, Countrywide, GMAC, HSBC, JPMorgan Chase, Washington Mutual and Wells Fargo. These lenders were analyzed because they are among the biggest financial institutions in the US and all originated a substantial volume of both subprime loans and lower-cost prime loans, according to the study. The banks that responded to requests for comment dismissed the study's findings. Each said it used automated tools to evaluate whether loans met investor guidelines. Those tools did not consider race, gender or ethnicity in determining the risk profile of a customer and, therefore, the interest rates available on any loan, according to -several banks.

A separate study on the subject showed that the trend is particularly pronounced in Boston. Jim Campen, an economics professor at University of Massachusetts Boston, found that high- income minorities were six to seven times more likely to have an expensive mortgage than high-income whites. Around 70 per cent of black and Latino borrowers in Greater Boston with incomes between $92,000 and $152,000 took out mortgages with high interest rates in 2005, according to the study.

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