A study by the Federal Deposit Insurance Corp. has found that Black and Hispanic home loan applicants are denied conventional loans at higher rates than white applicants, with some minority borrowers paying up to $2,000 more to refinance their mortgage. 

The FDIC study is among the first to examine data required by the Home Mortgage Disclosure Act that was expanded after 2018 to include credit factors such as a borrower’s credit score, debt-to-income ratio or loan-to-value ratio. 

Many studies have sought to account for differences in lending outcomes by race. But the new FDIC study by Stephen Popick, an FDIC senior financial economist, analyzed expanded pricing data from the HMDA to find discrepancies among different racial groups. 

The study also seeks to show that borrowers often make tradeoffs when getting a loan that involves a number of factors including the use of discount points, lender credits and loan fees that were only included in the data after 2018.

The 39-page study found the starkest difference in pricing by race in conventional refinancings, with Black borrowers paying roughly $1,900 more than white borrowers to refinance. By comparison, Hispanic borrowers paid roughly $550 more than white borrowers to refinance a home loan. 

The study, “Did Minority Applicants Experience Worse Lending Outcomes in the Mortgage Market?,” seems to answer its own question with a resounding “Yes.”

For conventional purchase loans, Black borrowers paid $1,583 more than white borrowers and  Hispanic borrowers paid $1,725 more for conventional purchase loans. Getting a loan from the Federal Housing Administration cost $541 more for Black borrowers and $26 more for Hispanic borrowers compared with white FHA borrowers. 

Overall, both Black and Hispanic borrowers paid roughly six basis points more in interest rate than white borrowers for conventional purchase loans, the study found. Black and Hispanic borrowers also paid more in discount points, as a percentage of the loan amount, but also received more in lender credits and paid more in total loan costs compared with white borrowers. 

Popick cautioned that differences in loan underwriting or loan pricing decisions between different groups “should not be interpreted as evidence of discrimination under fair lending” law because of other factors that cannot be accounted for such a borrower’s employment.

His study comes on the heels of an effort by the Federal Housing Finance Agency to reduce racial and ethnic disparities in home lending.

Though regulators use HMDA data and statistical analyses to identify potential fair lending risk and to find differences in how lenders make decisions, the data alone cannot determine whether racial disparities exist in lending, nor can it be used to determine whether individual lenders violated fair-lending law, Popick wrote.

Financial institutions are required under Regulation C, HMDA’s implementing regulation, to collect and report 48 data points though many institutions receive partial exemptions that allow them to report just 22 mandated data fields. 

Black Americans continue to face major obstacles to homeownership. 

Last year the homeownership rate was 72.1% for white borrowers, 61.7% for Asian Americans, 51.1% for Hispanics and 43.4% for Blacks, according to the National Association of Realtors. 

While the overall homeownership rate surged in 2020 to 65.5%, Black American homeownership is lower than it has been since 2010, when it hit 44.2%, the Realtor group found. 

By comparison, Hispanic homeownership set a record in 2020 by topping 50% for the first time ever.