Racial Bias in Mortgage Lending

October 23, 1991

The American banking industry has long been accused of discriminating against blacks in home mortgage lending, a perception reinforced by new Federal Reserve Board data which the Fed itself warns may be inconclusive. Bankers will protest, perhaps protest too much, but the end result may yet serve a useful social purpose.

Historically, there can be no doubt that African Americans have faced unfair obstacles in their upward quest to become homeowners. Presently there can be no denying that discrimination still exists and, in the words of a Fed official, it is "very worrisome." However raw and simplistic the statistics may be, they show that blacks nationwide are more than twice as likely as whites to be rejected for mortgages. Indeed, upper-income blacks have had less success than lower-income whites.

Since passage of the Community Reinvestment Act in 1977, government regulators have been charged with assessing not only a bank's economic performance but how readily it makes funds available to minorities. Then, two years ago, Congress put more teeth in the law by insisting on racial data that now are part of the public record.

While good-faith efforts have been made, in Baltimore and elsewhere, they are not enough. Two large banks attempting mega-mergers have found it expedient to do more for minorities in order to soften advocacy opposition to their plans. BankAmerica, announcing a $5 billion community investment drive over the next decade, said it is appointing more minority loan officers, subjecting rejections of minority applications to higher review and appointing an ombudsman to handle complaints. NCNB, which made a similar $10 billion commitment, said it would consider payments to utilities as well as personal loan records in determining credit-worthiness and include non-spousal sources of income in mortgage applications.

As this issue gathers steam, banks are in a contradictory position. While they insist that many more factors should be considered by the Fed in determining whether discrimination exists, they are lamenting the cost of compiling the data already required. And while they are getting heat to make more minority mortgage loans available, they are under countervailing Fed pressures to avoid unsound lending practices.

We believe the banking industry would be well-served by a positive approach. It should accept the new Fed data as predictable confirmation of a problem it is confronting and affirm its intention to do a lot more. Neither bank-bashing nor bank-backlashing will serve the public interest.

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