Bankers, Lenders Say Data Tells A Different Story...

Mortgage and banking industry experts are disputing a new study by a Washington, D.C.-based lobby group that claims the industry has not done enough to reach out to black and Hispanic applicants seeking conventional home mortgage loans have grown nationwide since 1995.

The study, put out by ACORN, the Association of Community Organizations for Reform Now, used public data under the Home Mortgage Disclosure Act (HMDA), and says that rejection rates for conventional home mortgages for black and Hispanic applicants are growing.

Sharolyn Rosier, a spokeswoman for the Mortgage Bankers Association of America, also based in Washington, D.C., said MBAA had not seen the ACORN study.

However, she noted, MBAA's own research of HMDA data showed that between 1993 and 1997, the number of loans funded to black applicants alone has grown 58.4%

ACORN's study, in turn, is based on loan data from 9,041 lenders in 35 U.S. cities, and concludes from the data gathered that with unemployment and interest rates so low, recent gains by black and Hispanic borrowers are disappearing.

"In general we found a pattern of disparity in conventional home loans between white applicants and African American and Latino applicants that is growing," said Patrick Woodall, policy analyst at ACORN. "What we see is that the rejection ratios are increasing."

Woodall said ACORN believes that what is driving the disparity is combination of lending discrimination based on "inflexible" computerized credit scoring, racial discrimination, the steering of minority applicants to costlier government-backed lending vehicles and the national trend of bank consolidations, which he said puts them more out of touch with communities in which they do business.

"More than twenty years after the enactment of the Community Reinvestment Act and over thirty years after the enactment of Fair Housing and Equal Credit Opportunity Act, the racial disparities in lending patterns continue to be significant and, in some measures, are growing more uneven," the ACORN report states in its conclusion.

The ACORN study, incidentally, was released less than two weeks after a Richmond, Va., civil jury found that insurer Nationwide Insurance Enterprise should be forced to pay $100 million for discrimination and for leaving minority neighborhoods out of marketing campaigns. Nationwide plans to appeal the decision to the Virginia Supreme Court, and legal experts point out that such nine-figure awards are usually reduced even if the facts are upheld on appeal.

A spokesman for the American Bankers Association said they aggressively seek out minority applicants. In fact, many major institutions have adopted a strategy of reviewing once rejected applications to determine if computer credit models were too inflexible.

The lenders ACORN's study examined took 4.91 million applications for both conventional and government home purchase mortgages between 1995 and 1997 and originated 3.48 million loans over this period. ACORN's researchers determined that, in their view, racial disparities in lending are significant, and increasing, as revealed by an examination of the Home Mortgage Disclosure Act data.

"Though there were improvements in the trends in the early part of the decade, many of the gains made by African Americans and Latinos have disappeared," the study stated. "On average, the situation is growing worse by almost every measurement and certain markets are demonstrating particularly alarming trends in the disparity of the mortgage markets."

One problem those in the mortgage and banking industry seized on was that the ACORN study did not take into account credit histories and income levels.

Contrary to the ACORN findings, Rosier said MBAA researchers found the industry as a whole has made great strides in reaching out to minority applicants.

"Our research on the HMDA data shows that the industry has done an excellent job in reaching out to minority applicants," she said. "In 1993, there were 162.370 loans funded to African Americans. In 1997, there were 257,233 -- a 58.4% increase."

Woodall said credit histories are not required by the HMDA Act, and were therefore inaccessible. He further stated that minority applicants deserve a separate criteria of credit requirements, because they often have fewer credit references in general and live in a more "usurious" environment. Inner-city minorities, he said, are often dogged by bad credit from "rent-to-own" businesses.

The ACORN study's findings Include:

Published: November 11, 1998

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