Expanded HMDA data on residential lending: one year later - Home Mortgage Disclosure Act - includes related article on lender education

Federal Reserve Bulletin, Nov, 1992 by Glenn B. Canner

The study revealed substantial differences in the financial and other economic circumstances of typical white applicants and those of minority applicants, and in the types of properties and characteristics of the loans they sought. For instance, minority applicants on average had weaker credit histories, fewer liquid assets, and lower net worths and incomes than white applicants. Minority households were also typically seeking to purchase properties with lower assessed values; as a consequence, their ratio of monthly housing expense to monthly income (one key qualifying ratio) was quite similar to that of white applicants. Other substantial differences between the two groups were that minority applicants were much more likely to be seeking to buy two- to four-family properties than single-family properties and were more often applying for loans with high loan-to-value ratios, most of which required private mortgage insurance for approval. Black and Hispanic applicants were also more likely than whites to be seeking a loan under special lending programs offered in the Boston market in 1990.

One of the more revealing findings of the study was that most applicants--both minority and white--had some flaw in their credit histories (such as a record of late payment on debts) or exceeded the basic debt burden guidelines for acceptable qualifying ratios (such as total obligations to income). Nonetheless, roughly 85 percent of all applicants in the study had been approved for loans, indicating that underwriters routinely considered compensatory factors.

Statistical analysis of the data revealed that, after controlling for significant economic factors affecting mortgage-lending decisions, there were unexplained differences in loan approval rates for blacks, Hispanics, and whites among the surveyed mortgage lenders as a group. Economic differences accounted for much of the disparity that was apparent in the HMDA data, but they do not appear to explain it entirely. Specifically, the study found that if minority applicants had the same economic and property characteristics as white applicants (thereby differing only by race), they would have experienced a denial rate of 17 percent, compared with 11 percent for whites. Stated another way, the analysis indicates that the denial rate for minority applicants would have been 20 percent if the race of the applicant had not been a factor--compared with the actual denial rate of 28 percent revealed by the HMDA data.

The findings of the study suggest that greater attention is needed to ensure the fairness of the mortgage-granting process. The degree to which the findings reflect outright discrimination by individual loan officers and financial institutions in the market remains unclear. The regulatory agencies will follow up with on-site examinations in Boston to assess further the fairness of mortgage lending.

New York State's Review of 1989 Data

In March 1992, the New York State Banking Department released the findings of a study of the mortgage-lending practices of ten savings banks in metropolitan New York.(14) The department examined the banks' mortgage loan files in detail, focusing on the treatment of minority and female applicants and of applicants seeking to buy homes in areas of low income and in those with high percentages of minorities. It first reviewed the underwriting criteria that the lending institutions used, to determine whether they were in keeping with or more restrictive than industry and secondary market standards. It then considered the actual application of the criteria, to determine whether they were consistently applied or whether exceptions had been made--or not made--in a way that indicated discriminatory treatment.