Race and lending


AT a time when home-ownership rates are at record levels, some 72 percent of all white adults own their homes, compared with 46 percent of African-American and Hispanic adults.

Closing the gap would give millions of African-Americans and Hispanics a shot at the "American dream" of homeownership. It would also give lenders a healthy boost in their profits.

Why, then, are those who originate mortgages discriminating? Since this is the '90s and few fools actually put sheets on their heads and hurl racial expletives openly, the discrimination is probably unconscious. Still, it is extremely irrational.

According to the Association of Community Organizations for Reform Now (ACORN), African-American and Hispanics are rejected more frequently than white applicants for both conventional and government-backed mortgages.

Thus, while whites received 48 percent more mortgages last year than they received in 1995, African-Americans got only 25 percent more mortgages, Hispanics, 20 percent more.

At this pace, the gap in homeownership is becoming wider instead of closing.

ACORN studied 35 cities in 1997, and six more by 1998, finding widely differing mortgage climates. From the 1997 data, in Little Rock, Ark., for example, the number of loan originations "plunged" by more than 72 percent for African-Americans and 60 percent for Hispanics. In Los Angeles, the number of Hispanic mortgages fell by 21 percent.

On the other hand, in Atlanta, mortgages for African-Americans and Hispanics grew substantially -- by 33 percent for African-Americans and 47.9 percent for Hispanics.

Baltimore's record

In Baltimore, loan originations grew by 14 percent for African-Americans, but fell by 11 percent for Hispanics. Still, in Baltimore, nearly a quarter of all African-American loan applicants were rejected.

Still, a study from the Washington-based Urban Institute suggests that these numbers only tell part of the story. They don't include the people who never apply for mortgages because they fear rejection.

When lenders skew their outreach away from African-American and Hispanic communities, they discriminate against potential borrowers.

Meanwhile, African-American and Hispanic borrowers are more likely to get government-backed loans instead of conventional loans, especially FHA loans. But government-backed loans are often costlier, and often have lower debt ceilings, influencing the kind of home borrowers of color can afford and the neighborhoods they can locate in. ACORN says that lenders often do unfair "product steering."

Last week, Freddie Mac, a federally chartered agency that provides capital for mortgage lending, released a study showing that a disproportionate number of minorities, mainly African-Americans, have poor credit ratings.

But that doesn't explain the homeownership gap. Even if African-American borrowers have less than perfect credit, those who pay their rent on time ought to be considered good credit risks when it comes to homeownership. That's the track record lenders need to look at, but with computer-driven automated scoring, too many qualified borrowers don't get a chance to get home loans.

Low-risk borrowers

This is a civil rights issue that has major financial implications. Lenders are being shortsighted when they turn down minority borrowers who, even with poor credit ratings, are very likely to pay their home loans.

These borrowers are a source of profit, perhaps even more profit than their white counterparts if they generate special fees (or private mortgage insurance) because they have lower down payments.

The homeownership gap can be closed if laws like the Community Reinvestment Act and the Fair Housing and Equal Credit Opportunity Act are enforced.

But those lenders who are truly profit-motivated can also help close the gap with more outreach into communities of color, and with standards that are flexible enough to provide loans to those who may not meet the cookie-cutter standards of automated credit scoring.

Julianne Malveaux is a syndicated columnist.

Pub Date: 9/28/99

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