An official at Taunton-based Bristol County Savings Bank, whose Dartmouth office is shown above, says a new Federal Reserve study reinforces that credit-scoring models “[aren’t] based on racial factors but just credit history.”

A new Federal Reserve report documents for the first time that black and Hispanic borrowers generally have lower credit scores than whites.

“The Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit,” submitted in August as required by the Fair and Accurate Credit Transactions Act of 2003, will be relevant to ongoing patterns revealed in Home Mortgage Disclosure Act data that show minorities get higher-cost mortgage loans, predicted Paul F. Hancock, a partner in the Miami office of Kirkpatrick & Lockhart Preston Gates Ellis.

“I think this will do a lot to explain the differences,” he said.

But consumer advocates are calling the report “deficient,” saying it uses old data and a small data set, and fails to discuss new approaches that would ensure that minority borrowers get fewer high-cost loans.

“What they failed to do in adequate fashion, and what we think was a crucial part of their charge, was to see if alternate approaches would lessen the effect of minorities getting higher-cost loans,” said Allen Fishbein, director of housing and credit policy at the Consumer Federation of America in Washington, D.C.

The Fed also found that a credit-scoring model it developed using industry criteria does not discriminate by race or gender, and that the scores produced are predictive of future borrower loan performance.

The finding indicates that credit-industry scoring models “would pass the test of discrimination in the courts,” Hancock said, noting that is a longstanding concern of the lending industry.

However, he said, a question of accuracy likely will arise from the fact that the Fed used its own scoring model rather than one developed by one of the major credit bureaus.

The report was based on a random sample of 301,536 people whose full credit records as of June 30, 2003, and Dec. 30, 2004, were provided by Trans-Union. The credit bureau provided two credit scores for each: its proprietary TransRisk score and the VantageScore, a composite score developed using information reported to TransUnion and its rivals, Equifax and Experian.

Federal Reserve economists worked the consumer credit information into their own scoring model and correlated it with additional citizenship, race or ethnic description, gender and date-of-birth data for each person provided by the Social Security Administration.

“None of the credit characteristics included in the model serve, to any substantive degree, as proxies for race or ethnicity,” they concluded. In other words, borrowers’ scores did not change significantly when race was removed as a factor.

However, a borrower’s younger age or status as a recent immigrant does appear to affect credit scores, since a longer credit history – if it shows on-time payments – improves a credit score. Age is a protected category under U.S. anti-discrimination laws, but immigration status is not.

‘A Lot of Disparities’

Nelson Braga, vice president of mortgage banking at Bristol County Savings Bank in Taunton, said the study’s finding that credit scores are race-neutral “reinforces what was told to us when credit-scoring models came out – that they’re not based on racial factors but just credit history.”

Braga said it’s been about 15 years since credit scores have been used actively in mortgage lending.

Braga and Brian Driscoll, a production manager at Amerihome Mortgage in Winchester, said the scores are now a key factor in whether mortgage loans will be approved. (They’re also a factor in consumer loans, such as credit card and auto loans, home equity lines of credit and, on occasion, small-business loans).

“Credit scores rule the world right now,” Driscoll said. For example, he said, “just over the last 60 to 90 days, we have seen a tremendous increase in what the minimum credit-score requirements were for certain programs.”

Loans sold to investors differ in criteria than the loans Bristol County Savings keeps on its books, Braga said, adding that the bank sells about half its loans, mostly to government guarantors such as Fannie Mae and MassHousing, and keeps the other half.

The bank considers alternate proof-of-payment histories, such as utility and car loan payments, for its in-house loans, Braga said.

“A credit score, for us, is a guideline,” he said.

Greylock Federal Credit Union in Pittsfield considers a credit score something that makes the deal for a mortgage loan if it’s good, but won’t necessarily break it if it’s bad, according to Loan Officer Maureen Phillips. The credit union underwrites about 80 percent of its loans and sells others to government-backed secondary market purchasers such as Fannie Mae and MassHousing.

Fannie Mae requires a minimum score of anywhere from 580 to “the high 700s,” depending on the product, Braga said. It also considers how much money the borrower is putting down, how many creditors he or she has, and the length of his or her credit history, among other factors.

State agency MassHousing is “very stringent about credit scores,” requiring borrowers to have a credit score of at least 620, added Barry Thomas, manager of Amerihome Mortgage’s Burlington office. Driscoll, his Winchester-based colleague, said Wall Street investment bank underwriters’ minimum credit-score requirements are increasing almost daily.

Documentation of assets and income are another factor increasing in importance to secondary-market purchasers, according to Driscoll. He said brand-new U.S. immigrants seeking a home are a small but important part of his clientele who are hurt by the fact that they simply have no credit score.

“What I’m faced with is that I’m losing one-third of the criteria [for many products],” he said. Borrowers without a credit score – two out of 40 who came to him in the past two months – could miss out on loan opportunities entirely or be forced to come up with a much larger down payment, he said.

Thomas said Federal Housing Administration-backed loans are often the answer for people with minimal credit histories because they allow utility, cell phone and car insurance payments to be considered in lieu of a traditional credit score. The FHA only backs loan amounts of up to $363,000 in Massachusetts, but its borrowers do “spectacularly well” in repayments, he noted, probably because the loans have strict income-documentation requirements.

MassHousing also will consider alternative payment histories such as cell phone and car insurance if a young borrower has no credit score, Phillips said.

The agency is also “aggressive in helping minorities and newer Americans,” she added.

Fishbein, of the Consumer Federation of America, said CFA also is surprised the Federal Reserve, which acknowledges in its annual report on HMDA data that “aggressive” marketing of high-cost loans in minority communities is a likely reason why minority borrowers tend to get more of them, was silent on how that factor could have affected the credit-scoring study.

“People who take on higher-cost credit tend to have poorer repayment than those who take on lower-cost credit,” he said. “The Fed themselves have indicated that marketing to borrowers, some of whom could have qualified for lower-cost credit, is responsible for a lot of disparities in the subprime, aka high-cost, market. They didn’t seem to link the two, and we see that as a deficiency.”