Racial bias in lending is no surprise News analysis

October 27, 1991|By Charles Stein | Charles Stein,Boston Globe

BOSTON -- A few weeks ago, the producers of the ABC newsmagazine "Prime Time Live" used a simple but effective way of testing for racial bias in America: They put hidden cameras on two young men, one white, one black, and sent the pair on a series of parallel errands. They both looked for an apartment, shopped for a car, browsed in a record store while the camera recorded the reception they got.

The results were clear-cut -- and depressing.

The white man generally was greeted with open arms; the black man was greeted with suspicion. The white man was offered attractive deals. The black man was frequently asked to pay more. In the end the conclusion was inescapable: We may like to think we live in a colorblind society, but we are a long way from reaching that goal.

The same conclusion can be applied to the Federal Reserve tTC study released last week. A massive survey of the nation's banks found that banks reject home mortgage applications from blacks more than twice as often as for whites with comparable incomes.

In Baltimore, the ratio of rejections matched the national average. Blacks were denied home loans more than twice as often as whites, according to a separate study of the figures conducted by the Federal Reserve Bank of Boston.

And in Boston, the ratio was more than 3-to-1. Blacks in Boston with incomes of more than $45,000 a year were turned down more often than whites with incomes of less than $30,000.

"We aren't there yet," said William Apgar, head of the Joint Center for Housing Studies at Harvard, after listening to the survey findings.

The study, like most studies, has serious flaws. It fails to take into account key factors that loan officers use in making a mortgage decision: the wealth and credit histories of the borrowers and critical information about specific properties. Bankers argue, with justification, that if those variables were added, the numbers would look better.

Alicia Munnell agrees. But the Federal Reserve's research director makes another point bankers might not appreciate. "The pattern is so pervasive, and the discrepancy is so large that it is foolhardy to dismiss the results," she said. "The numbers send up a red flag. We are taking them very seriously."

To put it another way, even if the experiment had been done under perfect scientific conditions, and all the elements were weighed and measured, some of the residue left in the test tube would be labeled bias.

As expected, the study provided more ammunition for critics of the banks, who in the past have accused the banks of failing to give minorities a fair shake.

"You don't need a degree from data analysis school to know that the poor and minorities are not receiving their fair share of credit," said Representative Joseph P. Kennedy II, D-Mass., in a speech to the Massachusetts Community and Banking Council. "This 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."

Banks do have certain legal responsibilities. They are not allowed to discriminate. And under terms of the Community Reinvestment Act they are required to invest a certain amount of money in their own backyards. It is certainly fair to ask banks to live up to those commitments -- and to come down on them hard when they do not.

But sometimes lost in the ongoing debate between the banks and their critics is an important point: Banks are only a part of the problem.

It is not the sole fault of banks, for instance, that black households in America have a net worth that is only one-tenth the amount of white households. Or that the unemployment rate for blacks is twice as high as it is for whites. Or that by most measures of social distress blacks are in far worse shape than their white counterparts.

Bankers are a lightning rod for criticism. And there are some obvious reasons why. Banks operate in a fishbowl. They are regulated and their operational results are regularly reported in the press. And when it comes to housing, banks are practically the only game left in town.

Mr. Kennedy and the activists are on target when they ask bankers to do the right thing. But other players will have to do the right thing as well if this nation wants to be truly colorblind.

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