Today’s release of the national Home Mortgage Disclosure Act (HMDA) reveal that African Americans and Latinos are more likely to receive high-cost loans than whites – even when borrower and lender characteristics are taken into account. The accompanying Federal Reserve Bulletin article also indicates that disproportionately larger portions of minority borrowers turn to higher priced lenders. The pricing variations found will reinforce concerns about whether the lack of competition from mainstream prime lenders in these markets increase the chances that borrowers in certain communities pay more for credit.

In fact, the national pricing data may underestimate the likelihood that consumers may receive high-cost loans because the Federal Reserve smoothes out the regional variation of high-priced lending. Consumer Federation of America has found that there are significant differences between lending patterns in different cities in a study of a sample of the 2004 HMDA lending data in over 300 metropolitan areas released last week. This stresses the need for much more rigorous oversight – especially of the under-regulated independent mortgage companies.

Consumers have every right to expect that the mortgage funds they borrow from lenders are priced fairly, based on legitimate risk-factors and not because of opportunistic pricing that take advantage of the lack of borrower knowledge and financial sophistication. CFA calls upon federal and state banking regulators, states attorneys general, and other enforcement officials to step-up their oversight of the subprime market to ensure that lenders are fully compliant with federal and state consumer protection and fair lending requirements.

Allen Fishbein is the Director of Credit and Housing Policy at the Consumer Federation of America.