Seizing on the latest loan-discrimination data, Democratic lawmakers on Thursday demanded that regulators increase enforcement of community reinvestment and fair-lending laws.
"At a time when the economy is roaring and interest rates are at a 20- year low you would expect lending to soar to minorities," said Rep. Joseph P. Kennedy 2d, D-Mass. "But it just isn't so."
Data released Thursday under the Home Mortgage Disclosure Act showed that growth in lending to minorities and low-income borrowers has slowed considerably from the double-digit percentages recorded earlier this decade. Rejection rates for blacks and Hispanics hit all-time highs.
"This is the latest picture of discrimination," said Rep. Maxine Waters, D-Calif. "The fact that 98% of banks score satisfactory or better (on Community Reinvestment Act exams) does not square with this data."
To press their point, 10 Democratic lawmakers sent a letter to the four banking and thrift regulators complaining of lax CRA enforcement.
"CRA plays a critical role in holding federally insured financial institutions accountable in meeting the credit needs of their communities, including low- and moderate-income communities," they wrote. "But CRA can only be effective in this critical role if CRA exams unfailingly signal (sic) out institutions that are not doing a good job of meeting such credit needs."
Bankers and regulators, however, said Community Reinvestment Act enforcement is quite rigorous.
"I have just gotten through an exam by the Office of the Comptroller of the Currency, and let me tell you, the regulators are in full enforcement mode," said Agnes Bundy Scanlan, senior vice president for community reinvestment at Fleet Financial Group. "We spent thousands of hours on this with the regulators."
Ronald F. Bieker, deputy director for compliance and consumer affairs at the Federal Deposit Insurance Corp., said the public needs to look at all the data, not just rejection rates and year-to-year fluctuations.
The slowdown in lending "is a concern to us," he said. "But you have to look at other factors as well. Over the last five years, loans to blacks and Hispanics have grown at twice the rate for whites."
Ellen S. Seidman, director of the Office of Thrift Supervision, agreed that the data contains positive news.
"Lending rates to minorities continue to increase, and at rates higher than for whites," she said. "The same is true for low-income. Lending to them increased at a rate higher than for higher-income" borrowers.
Rep. Maurice Hinchey placed part of the blame on Republican lawmakers, who have been trying to roll back CRA requirements. "We have a political problem," the New York Democrat said. "Republicans are aggressively attacking this program."
A Republican House Banking Committee official said efforts to exempt small banks from CRA will not reduce lending. "What we need is a workable CRA that targets people who need loans," the official said.
As reported Thursday in American Banker, the Home Mortgage Disclosure data for 1997 indicated a pronounced slowing in loan growth to blacks, Hispanics, Native Americans, and low-income consumers.
Lending to blacks and Hispanics rose 4%, while loans to Native Americans fell 1%. In 1996, loans to Hispanics and Native Americans increased 13.4% and 11.4%, respectively, while loans to blacks rose by a similarly weak 3.1%
Whites experienced a 2% increase last year, off from an 8.1% rise in 1996. But their total of three million loans was about six times more than all other racial and ethnic groups combined.
For conventional mortgages, the changes were even more anemic. Lending fell 2.6% for Hispanics and 1% for Native Americans, while rising 2.6% for blacks. For government-backed loans, growth was 11.2% for Hispanics and 5.5% for blacks, while Native Americans were off 1.7%.
The data showed that minorities continue to be rejected for loans about twice as often as whites. The greatest disparities were for those earning more than 120% of the median local income. Blacks in this income range were rejected 21.7% of the time, almost two and a half times more often than similar white applicants.
Blacks earning 50% of the median local income, by contrast, were only 1.2 times more likely to be rejected than similar white applicants.