"How to protect yourself against unfair higher mortgage rates from mortgage brokers and lenders"

Studies find that Minority groups such as African Americans and Hispanics are hit with higher mortgage rates. African Americans and Hispanic homebuyers pay more for their mortgages than do whites, according to a Federal Reserve. The Fed's analysis of 2005 home-lending data found that 54.7 percent of black borrowers paid a higher-than-typical interest rate on home mortgages. That was up sharply from 32.4 percent in 2004.

For Hispanics, 46.1 percent paid more than typical for their mortgages last year - more than double the 20.3 percent reported in 2004. In contrast, only 17.2 percent of whites paid higher interest on their home mortgages last year. However, that was up considerably from 2004's 8.7 percent. For all borrowers, there was a "significant increase" in the incidence of higher priced mortgages from 24.6 percent in 2005 compared with 11.5 percent in 2004.

A number of factors was cited for this overall increase. Mortgages rates in general were rising and rates for popular adjustable-rate mortgages in particular moved higher. And, some borrowers stretching to buy a home opted for creative financing, such as higher-priced piggyback loans. The use of piggyback loans shot up more than 57 percent in 2005 from the prior year, the Fed said.

"Indeed, the increase in the number of higher-priced piggyback loans in 2005 accounted for more than half of the increase in the number of all higher-priced loans," the report said. The report also said black borrowers applying for mortgages were more likely to be turned down than Hispanics and whites. The report doesn't provide interest rates charged to the different racial groups. It also doesn't include information, such as the borrower's

The Fed's report is based on information from 8,848 financial institutions, which covers about 80 percent of home lending nationwide. The Fed is required by Congress to report annually on home-lending activity.

To understand how and why it happens, it is necessary to understand how rates are determined. Lenders/Bankers' rate sheets do not vary with race, which would be obviously illegal. Lenders do not discriminate in their posted prices. Lenders may commit many sins, but I strongly that they don’t discrimination against African American and Hispanic minorities is one of them. I have been using price sheets of many lenders, and I have never seen one that had a column indicating a different pricing based on races.

The unfair treatment of minorities occurs at the second stage, where posted prices are converted into final prices to borrowers. In the wholesale market, lenders deliver wholesale prices to mortgage brokers, who add a markup to  retail rates offered to borrowers. If the posted price is 6.5% and zero points, for example, a broker might offer the loan at 7.25% and 0.75 % being the markup, which translates into points, thus commission being made by the mortgage brokers.

Within a certain limit determined by states' law, mortgage brokers have complete discretion over the final price offered to home borrowers. They are most independent contractors who act as sales people and price loans as they please. Some lenders place limits on markups, but these limits are usually absurdly high. Since there are hundreds of lenders on the market, loan officers can easily move from one lender to another, any one lender attempting to enforce more rigorous constraints on markups would quickly lose brokers and business.

The great majority of mortgage brokers and loan officers charge what the market will bear, without regard to race or color. But there may be a perception out there that minorities such as African Americans and Hispanics are easier to take advantage of than white people. The result is the same as if there were deliberate discrimination.

If high-price lenders do more soliciting than other lenders, and if minorities are more vulnerable to solicitations, they will end up with dealing with those lenders in disproportionate numbers. I highly recommend ALL borrowers  not to respond to Internet or direct mail solicitations.

In my view, borrowers are victimized primarily because they are ill-informed, and given that the information that would protect them is available, they bear some responsibility for not finding and taking advantage of it.

I wish the African Americans and Hispanics attempt to do more to avoid predatory lending. There are too many bad mortgage brokers and loan officers out there ready to take advantage of uneducated borrowers, and they are extremely good at disguising their true intentions.

The best approach is to identify the few good and caring mortgage brokers and ignore the rest, which are in abundance in this market. The more educated borrowers are, the higher the chances to get the right deal. I highly recommend African Americans and Hispanics to visit my section Mortgage Tips. Whether you are looking to purchase a new home or refinance an existing mortgage, it is critical that you are informed and educated as much as possible. I have created 17 Special Reports, which will guide you through the complex mortgage process.

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Andre Plessis

Andre Plessis
"The Mortgage Guru"
"A Mortgage Professional whose primary goal is to provide the expertise, guidance and skills necessary to obtain the best mortgage to meet your personal needs".
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