Lending Inequities

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Two couples walk into a mortgage lender's office. Each has the same mortgage needs and give lenders similar credit histories, incomes, and financial backgrounds. They may not receive the same treatment, however. An investigation by The Urban Institute found that minority couples were less likely to get information about loan products, received less time and attention from loan officers, and were quoted higher interest rates than white couples in most cities where the organization conducted the tests. "With low unemployment and low interest rates, the dream of homeownership should become a reality for more people in our communities," says Maude Hurd, president of the Association of Community Organizations for Reform Now (ACORN). "But we are still shut out by too many lenders."

Last year, African Americans were twice as likely as whites to be rejected for conventional mortgages, according to a new ACORN study that analyzed the ho me purchase and refinance mortgage activity of nearly 12,000 lenders in 41 cities across the country from 1995 to 1998. Latinos were 1.8 times as likely to be denied a loan. While the number of mortgage applications by whites and blacks rose by roughly the same rate from 1995 to 1998 - 51.6 percent for whites, 49.7 percent for blacks - it didn't result in an equally large boost in loans to both groups. The number of loans to African Americans grew 22 percent during that time period, while loans to whites increased 48 percent.

While acknowledging that there are issues still to be addressed within the industry, mortgage lenders contend that higher denial rates among minorities may also be due to discrimination that occurs in other sectors of society. Lack of educational opportunities can have a negative impact on income and, as a result, put home ownership beyond a person's reach, says Steven Hornburg, executive director at the Research Institute for Housing America - a think tank funded by the Mortgage Bankers Association.

Poor credit is another external factor affecting mortgage application rejections. A new Freddie Mac report, based on a survey of 12,000 households with incomes of less than $75,000, shows that 48 percent of blacks and 34 percent of Hispanics have poor credit histories, compared to 27 percent of whites. The disparity persists across all income levels: Black and Hispanic consumers are more likely to have poor credit than whites whether they earn less than $25,000 or nearly $75,000. It is not clear from the study why the disparity exists.

Consumers with poor credit, regardless of race or ethnicity, give themselves low marks in their ability to control spending and plan for their financial future. Fannie Mae, the nation's biggest underwriter of mortgages, thinks it has a solution to help people with bad credit acquire a home. Last month, the government-subsidized corporation announced a pilot program that will ease credit requirements on loans it purchases from banks and other lenders. The program hopefully will encourage lenders to extend home mortgages to individuals whose credit is not good enough to qualify for a conventional loan.

For more information about the ACORN study, call (202) 547-2500. Freddie Mac's National Consumer Credit Survey can be accessed at www.freddiemac.com.

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