After several years of building up fair-lending programs, home mortgage lenders are scratching their heads over new government data showing a slowdown in the growth rate of lending to minorities.
Many insist there has been no meaningful letup, but some worry that the numbers may be a sign that the industry needs to redouble its efforts.
"Hopefully what we've seen is an anomaly," said Angelo Mozilo, chief executive officer of Countrywide Home Loans. "We should all be patient and see if this trend continues."
The data, released last week under the Home Mortgage Disclosure Act, showed that lending to blacks and Hispanics rose just 4%, well off the double-digit growth pace posted for most of the 1990s.
The data indicated that minorities continue to be rejected for home loans nearly twice as often as whites. The rejection rates for blacks and Native Americans were at all-time highs, 53% and 52% respectively, while whites were rejected just 26% of the time.
The numbers clearly jarred the industry.
"There's been no letup on the part of our company and I believe on the part of the industry with regard to lending to minorities and low-income people," said William Schenck, chief executive officer of Fleet Mortgage. "The examiners' commitment to the Community Reinvestment Act and fair lending is as rigorous and thorough as it has ever been."
Mr. Mozilo said that, given the requirements imposed on banks under the CRA, "if anything, the trend should be in the other direction. If we see this pattern again next year, we'll have to begin looking for the root cause of what's happening here."
One possible explanation, he said, is that some underwriters may be relying too heavily on credit scores, using them as the sole criterion for accepting or rejecting minority and low-income applicants, rather than as a guide.
"It's a concern because of human nature, human nature being: 'I'd rather not take a risk. I'll rely on this and nobody can criticize me,'" Mr. Mozilo said.
Mortgage companies started to incorporate credit reports in 1995, when Fannie Mae and Freddie Mac began requiring that Fair, Issac & Co. credit bureau risk scores, known commonly as Fico scores, be used to evaluate loans they bought from lenders.
Mr. Mozilo said that when credit scores are used properly lenders "spend adequate time on the lower Fico scores to see if you can get them approved. Whether it's working that way is a real question."
If the pattern in last week's HMDA report continues, over-reliance on Fico scores "should be looked at as one of the causes," he said.
Consumer groups jumped on the data as evidence that banks were slacking off in their fair-lending efforts and that stricter enforcement of the Community Reinvestment Act is needed.
"I'm hard-pressed not to conclude that backsliding on the (regulatory) agencies' part in terms of fair-lending enforcement has resulted in institutions' realizing they don't have to put that much focus on it anymore," said Matthew Lee, executive director of Inner City Press/Community on the Move.
But many in the industry saw the HMDA glass as half full, not half empty.
"I'm at a loss to find bad news," said Douglas Duncan, a senior economist at the Mortgage Bankers Association of America, noting that home purchase loans increased in 1997 for all ethnic categories except Native American, whose purchases declined 1%, and for all income groups.
Carol Parry, executive vice president for community development at Chase Manhattan Bank, noted that loans to minorities were still growing faster than loans to whites. "The fact that you have 4% growth for blacks and Hispanics is a positive story. We've all put resources and energy into putting more minorities in the mortgage business and making them homeowners."
But Daniel Russell, executive vice president for affordable housing at Norwest Mortgage, dismissed the argument that the rate of growth in minority and low-income lending had slowed to "normal" levels.
"I don't understand how you get normalization when there's a twenty- something percentage point gap" between the homeownership rates of minorities and that of the general population, he said.
"There's nothing 'normal' in a pattern that says the rate of closing that gap is slowing down," Mr. Russell said.
Some aspects of the HMDA report were misleading, lenders said. For example, they pointed out that the numbers may have exaggerated the problem because they included subprime and manufactured housing loans, which have been on the rise lately. These nascent lending areas have much higher denial rates than conventional loans.
"There are far more traditional lenders in the B and C business than in the past," Ms. Parry said.
Chase Manhattan found that when it subtracted manufactured housing and subprime loans, there was no increase in its denial rate from 1996 to 1997, she said.
Whether the data are valid or not, lenders argued that stronger effort in lending to minorities is not simply a matter of meeting regulatory targets.
Noting recent studies that show minorities and immigrants are an increasingly important force in the housing market, Mr. Mozilo said minority lending is "not charity" but simply good business.