There's a disturbing trend among home lenders, and it may gain the exposure that it deserves in the wake of the subprime fiasco. Minorities are more likely to hold these so-called toxic mortgages, even when comparing neighborhoods with similar housing prices. According to The New York Times:

Consider two neighborhoods in the Detroit area. One, located in the working-class suburb of Plymouth, is 97 percent white with a median income of $51,000 in 2000. To the east, a census tract in Detroit just inside Eight Mile Road has a very similar median income, $49,000, but the population there is 97 percent black.

Last year, about 70 percent of the loans made in the Detroit neighborhood carried a high interest rate -- defined as 3 percentage points more than the yield on a comparable Treasury note -- while in Plymouth just 17 percent did.

It's hard to attribute that to luck of the draw. It appears that, at least in some areas, minorities are being systematically denied access to mortgages, and that's unforgivable in this country. There are a variety of explanations for this phenomenon: traditional banks are less likely to have branches in areas with large numbers of minorities, and thus borrowers in those areas may gravitate to the subprime lenders that set up shop there.

In any case, this is definitely something that merits congressional investigation. Congressman Barney Frank has been taking a hard look at subprime, and hopefully he will add this issue to the stack of questions he plans to ask industry leaders.

Has the subprime mess exposed redlining of minority neighborhoods? originally appeared on BloggingStocks on Sun, 04 Nov 2007 16:10:00 EST. Please see our terms for use of feeds.