Were Federal Housing loans priced in a discriminatory way in Baltimore? Image: Flickr / kozumel / CC-BY-ND
In Baltimore, Maryland, and surrounding areas, there have been accusations of discriminatory lending rates. Federal Housing Administration secured loans are supposed to maintain a consistent rate. Some research says that Baltimore borrowers may have paid a higher rate when they bought homes in minority neighborhoods.
Baltimore FHA loans
A community-organizing group in Baltimore has released a study it says proves discrimination in FHA loans. For all loans that are Federal Housing Administration secured, the interest rate should be close to the same. Unlike traditional housing loans, the credit score and amount of the loan have very little effect on the rate. Veteran’s Administration loans have a similar structure. In a study of the FHA loans offered to Baltimore, Maryland, residents, however, it was discovered that homes in minority and low-income neighborhoods tended to have higher interest rates.
Overages may be at fault
For more than a decade, the Justice Department has identified “overages” as a place of possible abuse in FHA loans. Employees are usually given some latitude in determining processing fees and “overages” on loans. These loan overages help determine the commission that the salesperson is paid for the GHA mortgage they help set up. By charging low-income or minority neighborhood borrowers more in overages, purposefully or not, the loans could end up discriminatory.
Federal Reserve analysis counters discrimination charge
In an analysis of the FHA loans during 2008, the same year that Communities United studied, the Federal Reserve counters the charge of discrimination. The Federal Reserve studied these same Baltimore FHA loans, using information that is not readily available to the public. In order to preserve privacy, the exact dates mortgages are offered are not published. The Federal Reserve claims that the anomaly in mortgage cost happened because of the dive in home prices in late 2008. If the Baltimore FHA mortgages were discriminatory, then the data from 2009 and later years needs to be researched to determine the truth.
