Black and Latino homebuyers in Massachusetts continue to receive high-cost mortgage loans more often than their white or Asian counterparts, regardless of their incomes, according to a new report.

However, those involved in the preparation of “Changing Patterns: Mortgage Lending to Traditionally Underserved Borrowers & Neighborhoods in Boston, Greater Boston and Massachusetts” suggest the trend could shift in coming years as a brand-new state law takes effect. The report is the 14th of its kind created by Americans for Fairness in Lending Executive Director Jim Campen.

“Making a difference has been very frustrating,” said Kathleen Tullberg, manager of the Massachusetts Community & Banking Council, the 18-year-old, bank-funded group that produces Campen’s report every year.

MCBC has supported efforts such as the new law, which will subject state-licensed non-bank lenders to provisions similar to those required of banks under the federal Community Investment Act, as well as more funding for the state Division of Banks, which enforces fair lending laws.

The Massachusetts law could make a difference starting this year when it goes into effect, Campen and others said. State-licensed non-bank lenders made 70 percent of high-cost loans in the Bay State and accounted for four of the state’s top five subprime lenders in 2006, according to the report, which was released Thursday.

“The CRA results in a grade. Regulators talk to [lenders who don’t score well], and community groups are more likely to be able to talk to them,” said Campen, who also is economics professor emeritus at the University of Massachusetts at Boston. “I think for whatever reason, lenders subject to CRA don’t do high-cost loans.”

Campen’s report is based on 2006 purchase and refinance data on first-lien mortgage loans that lenders provided to their regulators under the Home Mortgage Disclosure Act (HMDA).

It also shows racial disparities exist independent of borrower incomes.

“It’s an interesting statement that Â… every single town in Massachusetts received at least one high-cost loan” in 2006, said Massachusetts Affordable Housing Alliance (MAHA) Executive Director Thomas Callahan. “The message is that this is a statewide problem.”

Callahan is a Mortgage Lending Committee member for the Massachusetts Community & Banking Council.

Increased Scrutiny

According to the report, black borrowers in Greater Boston classified as high-income – meaning that according to their mortgage applications they earned 120 percent to 200 percent of the area’s median family income – were nearly six times as likely as their white counterparts to receive a high-cost home purchase mortgage loan in 2006. High-income Latino borrowers were five times as likely to receive such a loan.

Eleven percent of high-income white borrowers, 56 percent of Latino borrowers and 65 percent of black borrowers who got a first-lien purchase mortgage loan in Greater Boston in 2006 got higher-priced loans. The Federal Reserve describes such loans as those whose annual percentage rate was three or more percentage points higher than the U.S. Treasuries rate at the time.

In contrast, just 14 percent of all low-income black borrowers earning less than half the area median who received a first-lien purchase loan in Greater Boston got a high-cost loan in 2006, compared to 25 percent of low-income Latinos and 6 percent of white borrowers.

Patterns for refinance loans were similar, but less pronounced.

Racial disparities in lending continue to be “huge and persistent,” Campen said. However, since HMDA data only started including high-cost loan information in 2004, it’s hard to discern patterns in high-cost loan disparities, he said.

Kathy Schreck, a report advisor and sales manager at Mortgage Lenders Network in Danvers, pointed out that HMDA data also doesn’t include information such as the borrower’s credit score, the loan-to-value ratio or borrower’s debt-to-income ratio, which would help prove whether racial disparity exists apart from such factors.

Schreck said the disparities revealed by the study indicate a need for more auditing of lenders by regulators.

Under Massachusetts’ 2004 predatory lending law, lenders that report to regulators under HMDA are subject to state audits of their compliance with fair lending laws, Schreck said. Such audits aimed at specific lenders whose HMDA data indicate racial disparities would be a good way to prove whether they exist, she suggested.

Massachusetts community banks don’t close many high-cost loans as non-bank lenders, according to the Changing Patterns report. They offered about 20 percent of all loans but just 1.3 percent of high-cost loans in Greater Boston in 2006.

In contrast, state-licensed non-bank mortgage lenders offered 50 percent of all loans and nearly 70 percent of high-cost loans that year.

Other types of lenders – mostly out-of-state banks such as Washington Mutual and Wells Fargo – made 29.6 percent of all loans and 29 percent of high-cost loans.

However, Schreck said sometimes banks closed loans for customers but sold them to other lenders who had pre-approved them, especially in recent years when demand for riskier loans has been higher.

Banks might have made more high-cost loans than reflected in HMDA data, she said, because those loans would be reported under the other lender’s HMDA data, she said.

But Mary Moura, vice president for residential lending at Boston’s Wainwright Bank & Trust Co. who served as an advisor for the report, said most banks responded to the demand for riskier loans, or loans for people with lower incomes, by creating in-house products or selling some loans to affordable loan provider MassHousing.

Bank loan officers also get paid less for a loan they refer than for one they are able to approve in-house, Callahan pointed out.

The report also found that, for the first time in 14 years, community banks and credit unions gained ground in home mortgage originations. Local banks and credit unions had a slightly larger percentage of the loan market in 2006 than the year before. In the mid-1990s, those institutions were closing nearly 80 percent of mortgage loans in the state. By 2005, that had plummeted to an all-time low of just 23.6 percent of all loans. But in 2006, banks and credit unions closed 25.6 percent of the Bay State’s home loans.

Banks are regulated not only by the Community Reinvestment Act – which requires them to make loans in all Census tracts in which they accept deposits, including low-income areas – but also must meet safety and soundness requirements and comply with fair lending laws, which look at whether the loan decisions made in all areas offer similar and reasonable terms, Moura said.

“For the most part, mortgage companies haven’t been subject to that kind of scrutiny,” she said.

Some affordable housing advocates have charged that certain mortgage companies practiced reverse redlining – offering higher-cost mortgages to residents of low-income neighborhoods who previously suffered from lenders’ redlining practices, which prevented them from getting any mortgage loan at all.

Four of Massachusetts’ top five subprime mortgage lenders in 2006 were non-bank institutions and therefore not subject to CRA-like provisions on a state level.

Under the new state law, they would be going forward, but none of those companies –New Century, Countrywide, H&R Block subsidiary Option One and General Electric subsidiary WMC Mortgage Corp. – make subprime loans any longer. New Century has gone out of business, Countrywide is being acquired by Bank of America, and Option One and WMC Mortgage Corp. were closed as credit standards tightened and investors started refusing to buy subprime loans.

“We can’t ignore that the market has at least temporarily cleaned up some of this,” Callahan said.

The final institution in the state’s top five subprime lender list in 2006, Fremont Investment & Loan, is a subsidiary of out-of-state bank Fremont General. Both parent ad its operating loan arm are being sued by Massachusetts Attorney General Martha Coakley for risky and deceptive lending practices.