WASHINGTON, June 1 (UPI) -- A study finds that the burgeoning U.S. market for subprime mortgages appears to discriminate against African-American and Hispanic borrowers.

The Center for Responsible Lending examined the interest rates and credit histories of borrowers in the subprime market, where those with poor credit histories borrow at higher rates of interest. Researchers found that blacks and Hispanics were far more likely than whites with similar credit histories to pay the highest rates, the New York Times reported.

Keith Ernst, one of the authors of the report, said that about one in five loans is now subprime - and that subprime lenders often target minority neighborhoods.

An industry spokesman denied racial discrimination. Doug Douglas, a chief economist for the Mortgage Bankers Association of America, suggested that simply comparing credit history and rating and the size of the down payment does not include all the factors that go into calculating a mortgage rate, which could include factors like the assets available to a borrower.

Study: Racial bias in sub-prime market

Blacks and Latinos pay higher mortgage rates than whites, even when they are equally qualified, according to a new study.

The Center for Responsible Lending said the study contradicts claims by lenders that blacks and Latinos pay more because, on average, they have shakier credit histories.

The study, called "Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages," looked at government and industry data on 50,000 high-cost or "subprime'' home loans made in 2004. Unlike most other research, the study released on Wednesday compared loans made to black, white and Latino borrowers nationwide who have similar credit scores.

It showed that blacks and Latinos are more than 30 percent more likely to be charged higher rates on most types of mortgage loans. The center described the study as "groundbreaking" and expects that it will boost the chances of a national anti-predatory lending bill that would increase regulation of the subprime industry.

A spokesman for the Mortgage Bankers Association disputed the results and expressed skepticism about the center's methodology.

"The findings just don't seem credible," said Mike Fratantoni, senior economist for the bankers, adding that the association will do "a more detailed review."

He said that at first glance the study seemed to omit important risk factors. For example, the center used monthly incomes when comparing borrowers. "I'm not aware of any lenders that use monthly incomes in dollars,'' Fratantoni said. "They're interested in overall debt and debt-to-income ratios."

He cited a recent study by the Federal Reserve based on 2004 data that included credit scores. That study found no evidence of racial or ethnic bias in lending decisions, he said.

But during a teleconference, Keith Ernst of the Center for Responsible Lending said the Federal Reserve study excluded data on loans made through brokers, which may have made a difference in the results.

A spokeswoman for the Federal Reserve said the agency had no comment.

Janice Bowdler, housing policy analyst for the National Council of La Raza, said during the center's conference call that lenders in Latino communities pay brokers higher commissions if they arrange for loans with higher rates.

"The institutions that offer the best-priced product are not serving the Latino community adequately," she said.

The center's data may also suggests that some blacks and Hispanics do not shop around enough for loans and that they may be more susceptible to telemarketing and direct-mail offers.

Debbie Bocian, one of the study's authors, said the study did not draw conclusions on the reasons behind the disparities.

The study found that blacks were 34 percent more likely to be charged higher rates than similarly qualified whites on fixed-rate refinance loans.

Blacks were 31 percent more likely to pay more for fixed-rate home purchase loans.

Latinos were 142 percent more likely to pay higher rates than whites for fixed-rate home purchase loans with no prepayment penalties, according to the study. On other types of purchase loans, Latinos were 29 percent to 45 percent more likely to pay more than whites.

The differences between what Latinos and whites paid on refinanced loans was insignificant.

Many studies in the past have shown that blacks and Latinos are more likely to be rejected for home loans and to borrow from subprime lenders, who tend to charge higher rates and fees.

But the industry has said this could be explained by lower credit scores and loan-to-value ratios.

But the mortgage industry, which is compelled by a 1975 law to release data on the race and ethnicity of its borrowers, has resisted releasing data about credit scores, making precise comparisons difficult.

The Center for Responsible Lending said its study used federal data and a private database that allowed it to include credit scores and loan-to-value ratios in its comparisons.

The study affirms that blacks and Latinos "are paying a premium for home loans because of the color of their skin and for no other reason," said Hilary Shelton, director of the Washington Bureau of the National Association for the Advancement of Colored People.

The impact of lending discrimination has far-reaching effects within the minority community because home equity is such an important ingredient in household wealth in America, said Natalie Williams, head of New York Attorney General Eliot Spitzer's civil rights bureau.

When minorities are paying more than their fair share, it makes it harder to avoid foreclosure during times of financial stress, and high foreclosure rates often contribute to urban blight, Williams said.

Spitzer was investigating possible discrimination in the mortgage business, but federal regulators ruled that nationally chartered banks do not have to turn over data about their borrowers' credit scores. Spitzer is hoping a federal court will allow him access to the data.

E. Robert Levy, executive director of the New Jersey Mortgage Bankers Association, said he didn't want to comment on the center's study until he takes a good look at it.

"I'd have to see if the data is valid and if it's being properly used," he said.

"One thing I do know is that I'm very confident, at least in New Jersey, our lenders and brokers have treated the consuming public very well."

Foreclosure and default rates are low statewide, while homeownership rates are up, he noted.

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