Rejection rates for black mortgage applicants are more than twice as high at black-owned banks as at mainstream banks, a study found.

"The regulators and the public most likely assume that if discrimination occurs it will be perpetrated by white lenders against black applicants," wrote researcher Harold Black, professor of finance at the University of Tennessee. "The results of this paper indicate otherwise."

Prof. Black said his statistics could be read to suggest that black- owned banks discriminate against other blacks. But he cautioned that such conclusions based on lending data have been flawed in the past, and he noted that there could be other explanations for the disparity.

"Black banks are not as viable as white-owned banks, so they have to be very careful in their lending practices," he said. "In some of these areas there are few good credits, so of course their rejections for black clients are going to be much higher."

In his study, "Do Black-Owned Banks Discriminate Against Black Borrowers?" Prof. Black sought to compare the lending statistics of mainstream and black-owned banks using Home Mortgage Disclosure Act data.

He developed two models to compare the data. The first focused exclusively on the HMDA data, using rejection rates, race characteristics, loan amounts, and loan-to-income ratios of the applicants.

The second model enhanced that data using demographic and neighborhood characteristics from the Census Bureau, together with asset-quality and performance data from yearend call reports from the Federal Deposit Insurance Corp.

Prof. Black acknowledged that HMDA data are limited, and he called them a somewhat unsophisticated basis for determining discrimination in lending. He pointed to a controversial 1992 study by the Federal Reserve Bank of Boston, which declared that mainstream banks discriminate against black applicants.

The results of that study have been challenged by some other researchers who cite flaws in the methodology. In fact, Mr. Black himself said he was skeptical of the Boston Fed study, adding that he doubts that there is systematic lending discrimination by banking institutions.

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