Minorities get help to qualify for loans

LENDERS WORK TO END BIAS

September 05, 1993|By Lorraine Mirabella | Lorraine Mirabella,Staff Writer

As racial bias in mortgage lending comes under more scrutiny by consumers, government officials and the banking industry, some local lenders have broken with tradition to reach more minorities.

In Maryland, lenders are playing new roles, those of educator rTC and counselor. To attract more business from low-income neigh

borhoods, they're offering salaries or higher commissions to loan representatives. And they're forging ties to community groups and brokers familiar with minority neighborhoods.

"The whole lending process has changed today. It's all part of consumerism," said Charles F. Reid III, president of the Maryland Mortgage Bankers Association. "Today, you will find many more lenders . . . trying to find ways to reach more low- and moderate-income people and minorities."

Such changes come amid growing evidence of inequalities in the mortgage market.

Studies in recent years have shown that blacks are rejected for mortgages much more often than whites. Data collected through the Home Mortgage Disclosure Act, for example, showed that rejection rates were 36.5 percent for black applicants and 17.2 percent for white applicants in 1991. And last month, a Ralph Nader consumer group accused lenders in 16 cities -- including two in the Baltimore area -- of refusing to make mortgage loans in minority neighborhoods.

Bankers have challenged conclusions from the studies, noting, for example, that HMDA statistics omit employment history, total debt and net worth -- key factors in making loans.

But instead of evading the larger issue, they have begun examining community lending programs and looking for ways to break into neighborhoods that are underserved.

National effort

The Mortgage Bankers Association of America is attacking the problem at a national level.

The group urges members to hire more people from communities where they want to increase lending,to require second reviews of rejected mortgages and to offer sensitivity training to loan officers and underwriters.

"We have to focus on the disparity in rejection rates, commit ourselves to rooting out its causes and eliminate the difference," President-elect Stephen B. Ashley told the National Association of Real Estate Brokers last month.

Throughout the country, mortgage rejection rates in minority neighborhoods have begun sliding down, 1992 HMDA reports show. Charlotte, N.C.-based NationsBank, which is buying Maryland National Bank, says denial rates for minorities fell from 31 percent in 1991 to 25 percent in 1992. For whites, denial rates fell from 18 percent to 11 percent.

In Maryland, many community programs have just begun. Some examples:

* Towson-based Atlantic Home Mortgage Corp. now doubles the commission on loans made in low-income neighborhoods.

And in a departure from the industry standard, the lender won't ** increase fees to process loans of less than $50,000.

"Loan officers weren't paying a lot of attention to the lower-priced areas," said Robert M. Connelly, Atlantic Home president. "We were having trouble hiring people for those areas that didn't have higher sales prices. In order to make it competitive, we had to raise the commissions."

* At Loyola Federal Savings Bank, employees will be trained incultural sensitivity -- for example, how to avoid sending unintended discriminatory signals.

This could mean simply understanding an applicant's saving habits and advising him to open a checking account, said Pete Ponne, vice president for community lending. "In the past, if you didn't have a bank account and track record, it's been difficult to help. We need to be sensitive to that."

The bank also plans to hire its first loan representative to work in low- and moderate-income neighborhoods. The salaried representative will guide borrowers through the mortgage application process and will develop alliances with real estate agents who serve minority communities.

'It makes sense'

"It makes sense because you're looking for someone who knows the community and works with community-based groups, whereas someone who has been driven strictly by commission has been focused elsewhere," Mr. Ponne said.

Since late last year, all rejected loans have been getting a second look from a board of Loyola vice presidents which keeps track of where and why loans have been turned down. So far, the board found that most loans were turned down because of poor credit. But in several cases, it found programs to help a rejected applicant qualify, and underwriters reversed their decision.

* At First Advantage Mortgage Corp. in Columbia, one-on-one counseling accounts for a major portion of homebuyer programs that are open to low- and moderate-income applicants and all Baltimore residents. One requires less cash for closing costs; the other allows buyers to acquire and rehabilitate old homes.

Seminar for first-time buyers

Mortgage applicants often fail to understand the importance of maintaining a good credit record, said Mr. Reid, First Advantage's president.

Atlantic Federal Savings Bank plans to tackle that problem Thursday. The bank, working with the nonprofit Belair-Edison Community Housing Service, hopes to attract first-time homebuyers to a mortgage seminar at its Belair Road/Erdman Avenue branch.

"I think a lot of people think they have to rent because they don't have enough to buy a house," said Gail Smith, vice president of the retail banking division.

"People would be surprised. They can get in easier than they think. But they have to remember it's a big step and not to be taken lightly," she said.

Because such programs are so new, their impact on overall lending patterns is uncertain, lenders said.

Still, community activists are encouraged.

"This is the most hopeful thing I see now -- community involvement of banks in the neighborhoods," said Vincent Quayle, director of St. Ambrose Housing Aid Center, the city's oldest nonprofit housing group. "There's a lot of activity. They're competing with each other to see who can do best."

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