Report Finds Banks Lag in Lending to Blacks

A report to be released today by the San Francisco-based Greenlining Institute reveals that major banks are falling short on conventional home lending to African Americans statewide regardless of income level. But they lag most severely in home loans to lower-income blacks in South-Central Los Angeles.

The state’s eight largest banks made only 26 conventional home loans in 1998 to South-Central Los Angeles African Americans earning $35,000 or less. Meanwhile, the nonprofit Operation Hope brokered nearly twice as many such loans, indicating that a market for such products exists, according to the findings.

The report concludes that the disparities are not due to direct discrimination by lenders. Rather, the coalition of church, consumer, civil rights and small-business groups attributes them to poor outreach by big lenders, adherence to unnecessarily strict credit standards, aggressive marketing by “unscrupulous sub-prime lenders” and the high cost of housing, among other factors.

Bank officials reached Tuesday said the lending gap to African Americans was undeniable and is being addressed through a range of outreach programs. However, several officials criticized the report for not including government-insured loans in the tally.

The study comes on the heels of a Department of Housing and Urban Development report that found minorities were less likely than whites to obtain mortgage financing and, if successful, tended to receive less favorable terms. Another national study released last month by the Assn. of Community Organizations for Reform Now found that the share of conventional mortgages to African Americans and Latinos has been eroding since 1995, with lending to whites growing substantially faster.

Even though “it’s not caused by direct discrimination, it is still a problem for American society to have a racial gap in homeownership,” Greenlining’s policy director, Robert Gnaizda, said.

The report, based on Federal Reserve data, found that all lenders lagged in conventional home loans to African Americans statewide and in Los Angeles County. Statewide, the number of such loans grew 19% from 1995 to 1998, compared with 51% for whites. In Los Angeles County, such loans increased 13%, compared with 52% for whites.

Discrepancies were apparent even for more affluent home buyers. Statewide, conventional loans to higher-income blacks increased 18% in the three-year period, compared with 43% for whites. In Los Angeles County, such loans to affluent blacks inched up 7%, compared with 44% for affluent whites.

The Greenlining Institute’s eighth annual report covered the 1998 lending activity of the state’s eight largest banks in South-Central Los Angeles, Los Angeles County and the state. The banks analyzed were Bank of America, Washington Mutual, California Federal Bank, Union Bank, Citibank, World Savings, Wells Fargo and Sanwa Bank.

Bank of America led the pack in loans to lower-income African Americans in South-Central with eight. Sanwa Bank and Wells Fargo Bank made no such loans in 1998. Meanwhile, the nonprofit Operation Hope helped broker nearly 50 such loans during the same period--almost double the total of the eight leading banks.

That indicates that the market is there if approached correctly, said Operation Hope founder and Chief Executive John Bryant. Operation Hope works with borrowers who meet looser, nontraditional credit requirements, such as having paid rent in a timely fashion for five years.

South-Central has a population of 1.1 million, about half of which is African American.

For overall home loans to African Americans in South-Central, regardless of income, Washington Mutual led with 67 loans, more than double that of any other bank examined.

The report addressed only conventional home mortgage loans and did not tally government-guaranteed loans such as those insured by HUD’s Federal Housing Administration and by the Department of Veterans Affairs.

Gnaizda said government-insured loans were not included because the program is rigid and more costly to borrowers, and those loans aren’t counted by federal regulators toward Community Reinvestment Act credits. Banks receive CRA credits for loans made in low-income communities.

Wells Fargo made only six loans to lower-income African Americans in Los Angeles County in 1998. However, 210 FHA loans to African Americans were logged in that same time period, Wells Fargo spokeswoman Kathleen Shilkret said.

The report examines 1998, a year of frenzied mergers, which complicates the data. Wells Fargo merged with Minneapolis-based Norwest Corp. in November 1998 and made no first mortgages before then. Data in the Greenlining report attributed to Wells Fargo are predominantly Norwest data that predate the merger.

Washington Mutual, too, completed a year of mergers in 1998, and all its home lending was carried out by those entities--Great Western and American Savings.

Washington Mutual has been running a pilot program in South-Central to allow broader underwriting guidelines, a more extensive review of borrowers and a more liberal documentation and cash requirement for buying homes, said Brad Blackwell, senior vice president of retail mortgage banking.

“Mortgage lenders nationwide have not necessarily cracked the code yet on lending to African American borrowers,” he said. “Very few were done to any [African Americans earning $35,000 or less]. We need to take a look at that.”

Bank of America spokesman Carey Walker said his institution launched several aggressive programs in mid-1998 to eliminate down payments and apply more flexible underwriting criteria to lower-income borrowers. Those programs were not running at full steam until the year’s end, he said.

The announcement of low-income lending pledges has become a standard feature of bank mergers as institutions seek to line up local support for transactions. The Greenlining data indicate that those promises have proved difficult to fulfill in some areas.