A massive national survey by the Federal Reserve shows that minorities are two to four times as likely to be rejected for bank mortgages as whites with comparable income, according to those who have seen the new report.
The nationwide data, due out later this month, could provide powerful ammunition to politicians and community leaders who have long argued that lending discrimination is a fact of life at the nation's banks. It also could hurt the banking industry and slow some proposed bank mergers at a time when the industry can least afford it, analysts say.
"It is going to be a major embarrassment for bankers," predicted Representative Joseph P. Kennedy II, D-Mass., who has been leading the fight in Congress to force banks to live up to tougher community lending standards.
Bankers who have seen the report say it is badly flawed because it does not contain certain critical information, including the wealth and debt histories of potential borrowers. The American Bankers Association is said to be preparing its own report on the subject.
According to the trade publication American Banker, Federal Reserve officials briefed bankers on the results of the study in a session at the ABA's annual convention in San Francisco.
"The dramatic disparities in loan-rejection rates will become quite a national issue," said Griffith Garwood, the Fed's director of consumer affairs.
"This is not a surprise at all," said the Rev. Charles Stith, national president of the Organization for a New Equality, a group that is working to increase investment in minority communities. "The banking industry has a profound and damaging history of discrimination."
Bankers say they are not in a good position to take on additional obligations. Banks have been losing money at a record clip, thanks to the collapse of the commercial real estate market.