Blacks far less likely to get mortgages, Fed reports

October 22, 1991|By Peter H. Frank | Peter H. Frank,The Federal Financial Institutions Examination Council

Blacks are more than twice as likely as whites to be rejected for home mortgages nationwide, and the ratio is more than 3-to-1 some cities, according to a study released yesterday by federal banking regulators.

Even poorer whites have an easier time obtaining a conventional home mortgage than the wealthiest blacks, according to the much-awaited report from the Federal Reserve in Washington.

"I find the differences to be very worrisome," Fed Governor John LaWare said. He said the report "raises some serious concerns."

In Baltimore, the rejection ratio matched the national average; blacks were denied home loans about twice as often as whites, according to a separate study of the figures conducted by the Federal Reserve Bank of Boston, which looked at conventional and government-backed home mortgages.

The city was second-best in absolute terms, however, with 15.6 percent of home-loan applications from blacks being denied while whites were rejected 7.5 percent of the time.That compared with the national average that showed blacks were rejected more than one-third of the time, compared with 14.4 percent for whites.

Yesterday's report, based on nearly 6.4 million loan and application records from 9,300 lenders last year, is expected to send shock waves through the banking industry at a time when a number of its largest players are seeking regulatory approval to merge and the industry as a whole is seeking broader powers from Congress.

Consumer groups, protesting that the industry has failed to meet its lending obligations to minorities, have attempted to block some of the largest pending mergers.

A number of the banks, including NCNB Corp. and C&S/Sovran Corp., have come out with plans in recent months promising to earmark billions of dollars in loan money for low-income areas. NCNB, which promised to start a $10-billion, 10-year program if its merger went through, announced last week that blacks were rejected for loans twice as often as whites at its banks.

Similar programs have been announced by the merging partners Chemical Banking Corp./Manufacturers Hanover Corp. and BankAmerica Corp./Security Pacific Corp.

Mr. LaWare cautioned against drawing conclusions about the reasons for the wide disparities in the lending rates and denied that the study was definitive proof that banks and other lenders were practicing discriminatory lending. He said further examinations of individual loan rejections were necessary.

Echoing comments by industry members as well as economists at the Fed, Mr. LaWare said that the data lacked critical information about the wealth and credit records of applicants and should only be used as a guide for additional study. "I'm not prepared to say there is discrimination going on here until we get further into the data," he said.

He did say, though, that the lending disparities "were a surprise."

"There are a vast number of credit criteria that are basically reviewed in the credit decision," said John B. Bowers, executive vice president of the Maryland Bankers Association, which represents the roughly 100 banks in the state. "While there's certainly room for improvement, you're not dealing with an exact science."

But critics of the industry's practices voiced concerns.

"Simply put, the new . . . data portrays an America where credit is a privilege of race and wealth, not a function of the ability to pay back a loan," Representative Joseph P. Kennedy, D-Mass., said in a statement. He accused the industry of trying to explain away the lending disparities with reasoning that was "misleading at best and pernicious at worst."

The data released by the Fed yesterday was the first time information as sweeping and inclusive had been collected by regulators. This year's report added the number of applications received and the race, gender and income of the applicants to the annual study, which has been conducted since 1976.

Overall, the report found that more than one-third -- 33.9 percent -- of the conventional home mortgage applications from blacks were rejected, while 14.4 percent of whites were rejected for similar loans. Hispanics were denied mortgages 21.4 percent of the time, while 12.9 percent of applications from Asians were denied.

According to the separate study released by the Federal Reserve Bank of Boston, lenders in the Boston area had the worst record, based on the percentage of blacks being denied mortgages; 34.9 percent of the applications were rejected. Washington, D.C., had the best record, with 14.4 percent of applications from blacks being denied.

Whites in the two cities, however, were denied mortgages one-third and one-half as often, respectively, the Boston report said.

Slamming the door

Denial rates for home purchase loans by race. Data refer to family homes purchased with conventional, FHA, FMHA and VA mortgages. Refinancings are not included.

City .. .. Asian .. .. Black .. .. Hispanic .. .. White .. .. Total

Atlanta .. 11.1. .. .. 26.5. .. .. 13.6. .. .. .. 10.5. .. .. 13.8

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