researchers reported Monday that private mortgage insurers were twice as likely to reject minority applicants as whites. Bank industry representatives seized upon the finding, saying it helps explain why banks reject a disproportionate number of minority home loan applicants. "It obviously shows how important decisions made outside the banking industry affect loans that banks can actually make," said James Chessen, chief economist at the American Bankers Association. Though bankers are often willing to lend to a marginal borrower if private insurance can be obtained, "there are rejections at a later stage that prevent that loan from being made." Glenn Canner, Wayne Passmore, and three other Fed researchers found that the high rejection rates for minorities could not be explained by income. The insurers rejected high-income blacks at twice the rate of whites - 14.2%, versus 7.1%. Hispanics were rejected even more frequently, 16.6% of the time. Denial rates for the lowest-income applicants also showed disparities: 20.7% for blacks, 21.1% for Hispanics, but only 12.5% for whites. The data do not prove discrimination, Mr. Canner said. Researchers would need to see information about the condition of the properties and the applicants' credit histories, debt levels, and employment status to draw those conclusions, he said. "Without information about these circumstances and about the specific underwriting standards used by PMI companies, the fairness of the decision process cannot be assessed," he wrote. Suzanne C. Hutchinson, executive vice president of the Mortgage Insurance Companies of America, denied that her industry discriminates against minorities, arguing that most insurers don't know the loan applicant's race. Also, she said, mortgage insurance plays only a minor role in the lending decision. Only 2% of all mortgage applicants are turned down because they can't get insurance, she added. The findings, based on 1994 data, were included in a larger study examining which institutions are at risk if low-income borrowers default on their mortgages. Mr. Canner said he expected Fannie Mae and Freddie Mac to have a significant exposure because they have entered the low-income loan market. Instead, the researchers discovered that banks and thrifts were at risk for 24% of all Federal Housing Administration-eligible loans to lower- income borrowers, compared with 15% for Fannie and Freddie.

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