A study prepared by the Urban Institute found that when buyer and loan characteristics are equal, African American and Latino borrowers are charged roughly $400 more in loan fees by FHA insured loan providers than nonminorities. In addition to increased loan fees charged by lenders, the study found that homebuyers in African American neighborhoods paid $120 more for title services than nonminorities, while borrowers in Latino neighborhoods paid an additional $110.
In the study, the authors examined the closing costs of Federal Housing Administration (FHA) borrowers when they buy a house, and to what extent buyer, lender and loan characteristics influenced these costs. The study analyzed data from a nationwide sample of 7,560 FHA-insured, 30-year fixed-rate home purchase loans from May and June 2001.
In general, the study found that total loan charges are related to loan amount, the mean house value in the borrower’s neighborhood and the borrower’s credit score. For every $1,000 increase in unsubsidized loan amount, the total loan charges increased by about $50. Additionally, total loan charges rose $2 for each $1,000 rise in the average house value in the borrower’s census tract. In contrast, total loan charges dropped about $440 for every 100-point credit score increase on a $100,000 loan. Borrowers without a credit score were charged $325 more for their loans. In addition, the study found that mortgage brokers charged on average $425 more in loan fees than direct lenders.
The study also found that the state in which a borrower lives in affects the loan charges. Borrowers in the three most expensive states, Nevada, Michigan and Utah, pay more than $2,500 more in loan fees than borrowers in Alaska, the least expensive state. Additionally, when accounting for variation in homebuyer characteristics, the title service fees in the least expensive state, North Carolina, are more than $1000 less than the title fees in New York, Texas and California, the highest-cost states.
The report, A Study of Closing Costs for FHA Mortgages, is available at www.huduser.org/publications/hsgfin/fha_closing_cost.html