No Improvement In '92 Loan Data
WASHINGTON -- Despite industry efforts to curb lending discrimination, there was little improvement in the treatment of minority mortgage applicants last year, according to data released Thursday.
While both applications and loans for minorities did increase significantly, the gap in rejection rates between them and whites failed to narrow, according to data collected under the Home Mortgage Disclosure Act.
In fact, the benchmark for progress--the disparity in denial rates for conventional home purchase loans between blacks and whites -- widened slightly last year: blacks were 2.26 times as likely to be denied as whites, compared with 2.16 times in 1991.
Baffled by Results
Banking regulators and other government officials, who presented the data to Congress on Thursday, said they were baffled why the numbers have not improvedc in light of vigorous efforts by both lenders and regulators to attack racial bias.
"These are really horrifying numbers," said Comptroller of the Currency Eugene A. Ludwig. "We have to get to the root causes of why they exist."
The findings frustrated lenders as well. "We're not at all satisfied with the HMDA numbers," said Donald G. Ogilvie, executive vice president of the American Bankers Association.
But, he added, the statistics alone are too limited to fully explain lending behavior. Key economic variables like credit history and debt load, he said. could explain a big chunk of the disparity.
The Home Mortgage Disclosure Act requires the government to collect and make public data on the mortgage lending activity of banks, thrifts, and mortgage companies. Since 1989, the law has required disclosure of applications and loans for most types of residential mortgages.
According to the latest data, the total number of applications submitted and loans approved skyrocketed last year, due largely to lower interest rates and a stronger economy. In 1992, more than 10 million applications were filed, compared with about 7 million the year before.
Refinancings accounted for much of that increase. But applications for home purchase loans rose as well, to 3.54 million in 1992, up about 300,000.
Denial Gap Presists
Denial rates for all ethnic groups and all income-levels declined last year. Nonetheless, the gap between the groups persisted.
Even when comparing applicants with similar incomes, white applicants across the board had lower denial rates than black and Hispanic applicants.
In fact, the denial rate of 21.1% for whites in the lowest income category was the same as for blacks in the highest income category, said Lawrence B. Lindsey of the Federal Reserve Board.
The officials gathered at Thursday's hearing before the Senate Banking Committee, including Attorney General Janet Reno, and Secretary of Housing and Urban Development Henry Cisneros, pledged greater cooperation in detecting and eliminating lending discrimination.
Most notably, Ms. Reno announced that the Justice Department and HUD had embarked on a joint fair-lending initiative to investigate and prosecute lenders that discriminate. That effort will focus mostly on independents mortgage companies, she said.
Ms. Reno also told Congress she would dedicate 18 new staffers and $1.1 million next year to investigations of lending discrimination.
"In our view, the lending industry should be subjected to the type of investigation that our department has conducted for many years in other civil rights areas," she said.
More Data Needed?
Meanwhile, the bank regulatory agencies raised the possibility of requiring the industry to report additional information.
"I think it's clear what we've got right now is not sufficient for us to take the data and identify discrimination," said Jonathan L. Fiechter, acting director of the Office of Thrift Supervision.
Mr. Lindsey suggested that additional data might be required under a revision of the Community Reinvestment Act that is due by the end of the year.
Senators at the hearing expressed frustration, though, that the banking agencies have not already been able to root out discrimination at the institutiions they regulate.
"People that can't figure it out don't deserve to have these jobs," said Donald W. Riegle, the Michigan Democrat who chairs the Senate panel. "Something much more aggressive has to be done about this."
Regulators said that the mortgage numbers cannot prove discrimination, but only point to a potential problem. Much of the disparities can be attributed to differences in income and other economic variables, said Mr. Lindsey.
In fact, according to a recent Boston Fed study, he said, differences in financial characteristics suggest that blacks would be about twice as likely as whites to be denied loans, even if no discrimination occured.
Some Gains Cited
While Mr. Lindsey said it is difficult to tell from the data whether some lenders' affirmative-lending efforts have paid off at all, he did point to a few signs that they have had some impact. For example, loans to the lowest-income applicants increased 27.1%, much more than the 12.3% increase among the highest income.
Similarly, the rise in both applications and loans to blacks was higher than the rise in those are comprising a larger chunk of the market.
Regulators also cautioned tht the data is limited by the accuracy of the lenders' records. In the last year, they said, they have the data some banks have submitted to them.
"This tends to cast some doubt on any HMDA-based analysis," Mr. Ludwig said.