Study cites loan bias - mortgage lending

Black Enterprise, Feb, 1992 by Nanine Alexander

A Federal Reserve Board report on mortgage lending shows that blacks are twice as likely as whites to have their mortgage applications rejected by banks and other lending institutions. The study, released last October, highlights the problem of discrimination in lending at a time when banks are seeking interstate banking powers. Community activists, who have alleged discrimination in lending for years, are using this new data to stop banks from expanding unless they agree to greater compliance with the Community Reinvestment Act (CRA).

The study reviewed 6.4 million loan-application records from 9,281 lending institutions nationwide. It revealed that in 1990, 33.9% of black applicants were denied conventional mortgage loans, as compared to 14.4% of white applicants; and 26.3% of blacks were denied government-backed mortgage loans, as compared to 12.1% of whites. In general, the lower the income, the lower the acceptance rate. About 25% of all black applicants fell into the low-income category.

"This [level of disparity] makes it much harder for the Fed to dismiss allegations of discrimination," says Steven Kest, executive director of the Association of Community Organizations for Reform Now (ACORN), an organization that encourages lending to low-income residents.

ACORN played a vital role in several bank mergers in 1991. It was instrumental in Atlanta-based C&S/Sovran Corp.'s 10-year, $10 billion community lending agreement that was reached last August after it announced its merger with NCNB Corp. of Charlotte, N.C. At press time, a similar 10-year, $10 billion agreement with Chemical Bank Corp. and Manufacturer's Hanover Corp. seemed likely before their proposed January merger.

ACORN also plans to negotiate with BankAmerica Corp. and Security Pacific Corp. who have proposed a merger in California. Since all mergers are subject to regulatory agency approval, banks appear willing to negotiate such agreements in exchange for approval to consolidate and broaden their banking powers.

Kest is optimistic that the national clamor for banking reform and election-year pressure will persuade the Federal Reserve and other agencies to examine banks more closely. "It would be politically advantageous for candidates to speak up for their communities in return for the billions of dollars we're forking over to keep up the deposit insurance fund."

Rep. Kweisi Mfume (D-Md.), member of the House Banking, Finance and Urban Affairs committee, has sponsored a provision requiring institutions seeking inter-state banking authority to demonstrate that their CRA programs successfully meet the needs of their communities. He is also seeking to strengthen the Equal Credit Opportunity Act to allow for punitive damages against CRA violators. "We must have some assurances that this discrimination, or discrepancies, will be corrected before we will grant broader powers," says Mfume.