The economy may be the foremost item on President Clinton's domestic agenda, but discrimination in lending to African-Americans deserves to be moved closer to the top. The Home Mortgage Disclosure Act and the Community Reinvestment Act have had an important impact in discouraging discrimination in home mortgage lending, but the evidence is overwhelming that such discrimination is still widespread.
It's Not Just Banks
Who is to blame for this unequal treatment in lending.? So far, studies have focused primarily on lending institutions. But there are other participants in the homebuying process whose actions and attitudes may result in lending discrimination.
Sales agents may engage in "steering" black house hunters to all-black neighborhoods and appraisers often place a lower value on houses being acquired by black buyers, thus limiting the size of the mortgage available. Loan purchasers, by their selection process, may contribute to discriminatory results.
Steps to Take
What should the administration do?
* Expand the enforcement staff of the Housing and Urban Development agency. Its workload has been increased, but not its resources.
* Encourage the establishment of areawide antidiscrimination agencies, perhaps nonprofit, in metropolitan areas.
* Increase direct-testing activities. Research shows the effectiveness of direct testing - in which black and white "customers" with the same financial backgrounds seek financing - in curbing discrimination.
* Eliminate caps on damages for illegal credit discrimination.
* Make it easier for people to find out which institutions lend to community residents and which do not, so residents can shift deposits to those that do.
* Study the kinds and degree of bias in other kinds of lending. This can be accomplished by requiring the same kinds of information on applications for auto or unsecured personal loans, for example, as for mortgages. Adding paperwork will add to the consumer's cost, but information is necessary for to action.
Sending a Signal
There is already enough information about discrimination on the part of lending institutions to warrant action.
Early steps in this direction by the Clinton administration could send an important signal to American business and to minority communities throughout the United States that the new administration will focus on more than just the deficit.