By Steven Ross Johnson
July 25, 2012
A racial divide continues to perpetuate among those seeking a mortgage loan, according to a new study. The report alleges that mortgage lenders have steered more black and Latino borrowers towards government-backed home loans by limiting their access to more conventional financing.
An analysis of mortgage lending in seven cities found that loans guaranteed by the Federal Housing Administration and the U.S. Department of Veterans Affairs were made to both minority borrowers and those residing in predominantly non-white neighborhoods at a much higher rate than white customers.
According to Spencer Cowan, a vice president at the Woodstock Institute, which was responsible for the report, lenders should offer more options to borrowers whose credit may fall just short of the minimum conventional loan requirements, but are well above the eligibility requirements for FHA or VA financing.
“Banks and lenders are not offering an array of products that meet those intermediate needs and abilities,” said Cowan. “We have to make sure that banks come up with products that are in-between FHA standards and their prime standards, so that people can get the appropriate credit that they deserve.”
Seen as the alternative for many borrowers who are unable to qualify for loans insured by a private lender, government-backed loans have less stringent requirements and require a lower down payment. But they can be more expensive in the long-term and offer less financing options. On the other hand, conventional loans offer more flexibility in terms of payment choices, but are harder to qualify for and often require a larger down payment than government-backed mortgage products.
Credit ratings usually act as the primary determining factor in lending qualification, with conventional loan approval going to those with a score of at least 620 and above. Those seeking government-backed loans have traditionally needed a credit score of at least 580.
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