The latest data on lending bias have banking's spin doctors working overtime.
Individual banks are seeking to cast their newly released 1991 mortgage numbers in the best possible light - and to offer plausible explanations where progress has clearly been slow. The explanations range from the recession to quirky events in specific markets.
The goal: heading off the public relations debacle that occurred last year, when banks for the first time were required to reveal rejection rates for loan applicants by race.
Chase Manhattan Corp., for example, proudly reported that its overall lending to minority group members in the New York area had jumped 63% last year, while its rejection rate for minority applications fell to 23%, from 27% in 1990.
It added that the rejection rate would have been lower still if not for a fluke at a specific cooperative apartment building that was to be occupied by 11 Hispanic families. The company converting the building into a co-op failed to meet certain Chase requirements, forcing the company to reject all 11.
Trade Groups Weigh In
Trade groups are serving up their own interpretations and maneuvers. The Consumer Bankers Association plans to unveil a survey showing that banks "are making a strong affirmative effort" to boost minority lending. And the American Bankers Association has been offering tips to bankers on how to respond to reporters.
The public-relations blitz, which is sure to continue for several weeks, also reflects renewed concern among the public and politicians about racial fairness issues.
In the wake of last spring's Los Angeles riots, banks have been increasingly sensitive to charges that they shy from doing business in inner-city neighborhoods.
Fear of New Regulation
Murmurs that onerous new rules on minority lending may be in the offing are already haunting the halls of some banks.
By directly attacking the mortgage data issue, however, banks also take risks. Critics may only be further agitated if banks with weak records try to compensate with puffery.
"No amount of hype or chutzpah can paper over a poor record in minority lending," said Fraser Seitel, a senior counselor at public relations giant Burson-Marsteller. He formerly was public affairs director at Chase Manhattan Corp.
Banks with weak records, he said, would do better to keep low profiles rather than fight back. "You have to be realistic enough to confront the problem internally rather than pretend that there is no problem," he said.
On the other hand, banks that truly are active in minority lending should consider aggressive publicity efforts. "It's an issue that's on the side of the angels," Mr. Seitel said.
Much of the scrutiny of banks' records has focused on the disparate denial rates for white and minority loan applicants. The data must be reported under terms of the Home Mortgage Disclosure Act.
Banks Begin Releasing Data
Individual banks have been releasing 1991 data in recent weeks, and the Federal Reserve is expected to release nationwide totals late this month.
The composite data for 1990 showed that banks nationwide rejected black applicants 2.4 times more often than whites and Hispanics 1.5 times more often.
"Preliminary review of the raw data for 1991 shows continuing disparities," the Federal Financial Institutions Examination Council, an umbrella group for five regulatory agencies, said in a recent press release.
The ABA has prepared its members for criticism over the apparent lack of progress by distributing guidelines on responding to media questions about HMDA. The first suggestion may seem absurdly basic - but experts say it was widely ignored last year.
"Be familiar with your own HMDA data and the reasons for whatever mortgage lending patterns exist in your bank," the guidelines said.
They go on to warn against a trap that, according to many observers, ensnared the ABA itself last year.
"Avoid getting into a debate about what HMDA data can or can't prove, or discussion statistics beyond your basic patterns," the document counsels. "The public is more interested in what your bank is doing and what it plans to do in the future to ensure that all applicants are treated equally and fairly."
Meanwhile, the heat is on.
The Association of Community Organizations for Reform Now, or Acorn, last week reported that half of 46 banks it studied had narrowed their gaps in rejection rates. But the improvement, it said, was offset by growing racial disparities at the other 23 banks.
Banks are taking widely different avenues to presenting their data. Wachovia Corp., for example, scrapped last year's press-release approach.
"When we sent one out last year, most of the newspapers did not seem to have an interest in it." said spokeswoman Nancy Lovelace. "This year, we have the same kinds of information but are sharing it with newspapers only when they ask for it." And, as required, HMDA data are available at Wachovia branches.
Other banks have actively publicized their results. Twenty employees at NationsBank Corp. spent six weeks last summer analyzing and summarizing its data. The company then told the press about its results.
Cost Is Termed Justified
The costs of the effort were "staggering," said Catherine Bessant. NationsBank's principal community investment officer. But she said the results justified the effort. The banking company, the nation's thirdlargest, can now discuss the aggregate results of 11 of its operating units in 150 metropolitan areas.
"Credibility means putting the issues on the table," Ms. Bessant said.
Her company readily acknowledges that it has failed to narrow the racial gap in rejection rates significantly, but it also declared in a press release that NationsBank has made "considerable improvement" in lending to minority group members. Indeed, its total of new minority loans grew 43%, to 7,217, in 1991.
Several other lenders also stressed increases in the absolute number of loans, rather than rejection rates. Increases in applications and loans, according to several experts, can reflect genuine efforts by lenders to reach out to minority communities.
Citing the Recession
The banking industry says that much of the failure to record significant year-to-year progress reflects a recession that is beyond its control. The poor are getting poorer, making it harder for them to qualify for loans even under modified criteria that some banks are adopting.
"There is probably some truth to that," said David Kelly, a senior economist at the Boston Co., a money-management affiliate of American Express Co. that is being sold to Mellon Bank Corp. "Recessions do tend to hit guys at the bottom of the heap harder than others."
The argument may be reasonable, but specialists in public relations warn that banks risk losing credibility if they assign too much blame to forces beyond their control.
"The economy is certainly having an impact," said Carol Makovich, a senior vice president at the public relations firm of Hill & Knowlton. "The risk comes if banks try to use that as the only reason."