Lenders accused of 'racial redlining' Nader group cites 2 with offices near Balto.

August 13, 1993|By Lorraine Mirabella | Lorraine Mirabella,Staff Writer

A consumer group founded by Ralph Nader yesterday accused lenders in 16 cities -- including two in the Baltimore area -- of refusing to make mortgage loans in minority neighborhoods.

The group released a study of mortgage applications by the top 20 lenders in each city. It said some lenders rejected minority applicants, but, more often, banks or mortgage companies avoided seeking out black and Hispanic homebuyers or discouraged them in subtle ways from applying.

The study found "strong evidence" that 49 lenders "engaged in racial redlining."

"The real issue here, for most of these lenders, is not whether or not they discriminate once people walk in their offices and apply for loans. They have marketing policies which induce people to stay away," said Jonathan Brown, author of the study.

The two Baltimore lenders mentioned in the study are B. F. Saul Mortgage Co., of Bethesda, a subsidiary of Chevy Chase Savings Bank in Chevy Chase; and American Home Funding, of Richmond, Va., a subsidiary of Rochester Community Savings Bank in Rochester, N.Y.

Among all loans in the Baltimore metropolitan area, 5.5 percent were made for homes in minority neighborhoods.

Of the loans originated by American Home Funding, 1.4 percent were in minority areas, and 0.9 percent of B. F. Saul's loans were in minority areas.

The study defined minority neighborhoods as census tracts in which minorities make up 50 percent or more of the population.

"The study is somewhat flimsy,and we're upset about it," said Alton Buie, senior vice president for American Home Funding. The company's single branch in the Baltimore area, in Pikesville, had just three loan officers in 1991, he said.

And because of its location, American Home Funding tended to make loans in Baltimore and Howard counties, which have fewer minorities than the city, Mr. Buie said.

"There are some areas where we need to improve, and we're working on that," he said. "This is an issue we're concerned about, because it's an issue that's growing in importance and prominence industry wide."

The company recently hired a minority firm to analyze its loan approval data, Mr. Buie said, and participated in the Federal National Mortgate Association (Fannie Mae) Community Homebuyer Program, a six-week media campaign to educate potential homebuyers, especially in low-income areas.

Also, American Home Funding now reviews minority applications that were turned down -- to look for racial discrimination -- and counsels rejected loan applicants, Mr. Buie said.

B. F. Saul Mortgage Co., whose lone branch in the Baltimore area is in Lutherville, said in a statement that it had not seen the study. It said the company encourages applications from minority and low- to moderate-income neighborhoods in its lending area.

The study, released yesterday by Essential Information Inc. at a press conference in Washington, obtained information from the Federal Reserve Board on mortgage applications in 1990 and 1991, then looked at whether the applications came from minority neighborhoods.

Referring to what he called subtle discrimination, Mr. Brown said lenders fail to develop ties with real estate brokers who serve minority communities. In addition, he said, some lenders tend to hold minority borrowers to stricter credit standards.

Further, institutions can "prescreen" applications so a homebuyer is discouraged from ever placing a bid for a loan, he said.

The Mortgage Bankers Association criticized the study.

"It is a travesty for the Ralph Nader organization to attack the lending community with a barrage of distorted and undocumented accusations alleging racial redlining," Warren Lasko, executive vice president of the Mortgage Bankers Association, said. He noted that other studies of the same data found no redlining.

"This supposed study makes an impossible leap in logic from looking at raw . . . data to concluding that banks are willfully discriminating in their lending decisions," he said.

But Steuart Pittman, director of national campaigns for the Association of Community Organizations for Reform Now,commended the study. "This was clearly done with a lot of expertise and a lot of time," he said. "Most lenders, we've found, . . . are doing a lot of talking about improving lending, but it's mostly glitzy brochures and not programs."

HOW THE STUDY WAS DONE

Essential Information Inc. selected 16 metropolitan areas with large minority populations. These areas included 37.7 percent of vTC the total black and 40 percent of the Hispanic population in the United States.Using Census Bureau tracts, the project calculated each lender's market share for each tract. It also noted tracts in which minorities made up at least 50 percent of the population.

To get a "Worst Case" designation, a lender had to: 1) rank "among the lowest" of the lenders in percentage of loans originated in minority neighborhoods; 2) originate loans in at least large segments of the metropolitan area; 3) show a pattern of excluding or underserving minority neighborhoods.

The cities surveyed were New York, Los Angeles, Chicago, Washington, Philadelphia, Detroit, Houston, Miami, Oakland, Atlanta, Dallas, St. Louis, Pittsburgh, Boston, Buffalo and Baltimore.

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