High Minority Mortgage Denial Rates Found

Blacks and Latinos are turned down for home mortgages at significantly higher rates than Anglos, federal regulators reported Monday in a massive study of lending practices at 9,300 U.S. financial institutions.

The differences are “very worrisome,” and federal examiners will use the report to determine if there is a pattern of discrimination at individual banks and S&Ls;, Federal Reserve Board Governor John P. LaWare said at a news conference.

According to the study, blacks were rejected for home loans more than twice as often as Anglos. Latinos were turned down about 1 1/2 times as often as Anglos. The experience of American Indians was about the same as Latinos, and Asians did slightly better than Anglos.

The rejection rates for conventional home mortgages were 12.9% for Asians, 14.4% for Anglos, 21.4% for Latinos, 22.4% for American Indians and 33.9% for blacks. The vast majority of loans reviewed were made to Anglos, blacks and Latinos.

The study was the first government examination of lending activity by race and ethnic group, and it covered more than 6.4 million loan applications for home loans at banks, savings and loan associations, mortgage banking firms and credit unions.

The report noted that blacks and Latinos have lower average incomes and fewer financial assets than Anglos. However, even at the highest income levels in the survey, blacks and Latinos were much less likely to receive approval for a conventional mortgage. The denial rates in this group were 8.5% for Anglos, 11.2% for Asians, 12.8% for American Indians, 15.8% for Latinos and 21.4% for blacks.

The industry’s lending performance was immediately assailed by congressmen who will be leading the floor debate when the House and Senate consider major bills to give banks broad new business powers.

“The cost in human terms is staggering,” said House Banking Committee Chairman Henry B. Gonzalez (D-Tex.). He urged President Bush to call a meeting of community groups and bankers to deal with the issue.

“Much of the problem is the result of attitudes of bank officials and regulators who have little understanding of the rest of America--officials whose life experience and economic circumstances are far removed from those of minority and low-income families,” he said.

Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.) said the industry and its regulators have not been paying attention to the issue. “I find it very troubling that we’re seeing this kind of data despite the fact that we have had federal laws prohibiting mortgage discrimination . . . for many years,” he said.

Rep. Joseph Kennedy (D-Mass.), the author of the 1989 amendment requiring the lending study, said that he will join other members of Congress and consumer groups in pressing for strong legislative action in response to the “alarming data.”

The American Bankers Assn. said that it will select a task force of bankers to develop ways to stimulate loans to minority-group members. The industry is “very concerned about these statistics,” Rob Dugger, the organization’s chief economist, said.

Loan denial rates for blacks varied widely among major American cities, ranging from 14.4% in Washington to 34.9% in Boston. Rejections for Latinos were lowest in Minneapolis, 8%, and highest in Houston, 25.7%.

In Los Angeles, the loan rejection rate was 12.8% for Anglos, 13.2% for Asians, 16.3% for Latinos and 19.8% for blacks.

Lending institutions were given reports on their activities earlier this month and have 30 days to make the information public. Several major California banks disclosed their mortgage lending records previously or on Monday.

Bank of America previously had disclosed a rejection rate of 26% for Anglos, 28% for Asians and 39% for blacks and Latinos. Security Pacific said Monday that its denial rates in California are 14% for Anglos, 18% for Asians, 29% for Latinos, and 31% for blacks.

Wells Fargo said it denied 32% of the applications from Anglos, compared to 41% for Asians, 53% for blacks and 51% for Latinos. Los Angeles-based First Interstate refused to discuss its results until after a directors’ meeting today.

Security Pacific executives could not explain why the bank’s rejection figures were so low but suggested that the figures from the other banks may have included applicants who did not get loans because they failed to provide all of the information the bank requested.

Robert L. Gnaizda, a lawyer with the San Francisco-based Greenlining Coalition, which is active in lobbying banks regarding service to low-income areas, said the survey may underestimate the difficulties minority members have in getting mortgages. He said many people never apply for loans at banks or S&Ls; because they believe they will be turned down.

Gnaizda cited as evidence the proliferation in inner cities of mortgage companies that charge high interest rates and huge fees on loans, sometimes working with scam artists who become the owners of the homes when the borrower cannot make the payments.

LaWare, a former banker, said the higher rejection rates for blacks and Latinos “may be discrimination, or it may be something else,” such as an individual’s credit history.

“I suggest it is worrisome, but I’m not prepared to say there’s discrimination until we get further into it,” he said. “I’m sure the bankers are concerned about their performance and how they are perceived in the marketplace.”

Overall, the surveyed institutions accepted 72% of the applications for conventional loans, denied 16.6%, and the remaining 10.2% were withdrawn. For government-backed loans from the Veterans Administration and the Federal Housing Administration, the denial rate was 16.5% and the withdrawal rate 10.5%.

There was no significant difference in the borrowing experiences of men and women, the study said. The rejection rate on conventional loans was 20% for men and 19.9% for women. Joint applications of men and women were rejected only 14.2% of the time.

The study was issued by the Federal Financial Institutions Examination Council, which includes all the financial regulatory agencies: the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corp., Office of Thrift Supervision and National Credit Union Administration.

Rosenblatt reported from Washington and Bates from Los Angeles.

Mortgage Rejections

Here is a list of home mortgage rejection rates, by race and ethnic group, for 19 large metropolitan areas during 1990.

Applications were for both conventional and government-backed loans to purchase one- to four-family homes. Refinancings are not included.

Reports from lenders were compiled by the Federal Financial Institutions Examination Council and analyzed by the Federal Reserve Bank of Boston.

Metro Area Asian Black Latino Anglo Atlanta 11.1 26.5 13.6 10.5 Baltimore 7.3 15.6 10.1 7.5 Boston 15.4 34.9 21.2 11.0 Chicago 10.4 23.6 12.1 7.3 Dallas 9.3 25.6 19.8 10.7 Detroit 9.1 23.7 14.2 9.7 Houston 13.3 33.0 25.7 12.6 Los Angeles 13.2 19.8 16.3 12.8 Miami 16.9 22.9 17.8 16.0 Minneapolis 6.4 19.9 8.0 6.1 New York 17.3 29.4 25.3 15.0 Oakland 11.6 16.5 13.3 9.6 Philadelphia 12.1 25.0 21.0 8.3 Phoenix 12.8 30.0 25.2 14.4 Pittsburgh 12.2 31.0 13.9 12.0 St. Louis 9.0 31.8 13.5 12.1 San Diego 11.2 17.8 15.1 9.8 Seattle 11.6 18.3 16.8 10.7 Washington, D.C. 8.7 14.4 8.9 6.3