Now, at least part of this segmentation of the market by race and ethnicity may reflect objective differences in borrowers’ preferences or differences in credit-risk indicators, such as credit scores, that are not included in the HMDA data. Yet the segmentation may have more troubling causes, at least in part.
Segmentation may stem from borrowers being steered to lenders that charge higher prices than what is warranted by the credit characteristics of these borrowers. Borrowers may also have different levels of financial literacy, or their knowledge of the mortgage lending process may be uneven - for example, they may not understand the importance of shopping and negotiating for the best loan terms.