Tale of 3 Cities: Bias Data Evoke Anger, Introspection, Resignation

The new federal data suggesting discrimination in mortgage lending are starting to hit home.

Three weeks after the Federal Reserve released data showing that minorities are rejected for mortgages in disproportionate numbers, civic leaders across the country are demanding answers and, in some cases, taking action.

These local responses, coming on top of action by federal officials, are sure to gather steam in the coming months as community groups, city councils, and state legislators sift through 1.2 million pages of Fed data.

"It has only begun to roll," says Jo Ann S. Barefoot, a community reinvestment consultant based in Columbus, Ohio.

Taking the Pulse

To gauge the early public reaction, the American Banker has examined the reaction in three cities: New York, home to many of the largest commercial banks; Los Angeles, a thrift industry mecca; and Atlanta, where the issue of discrimination in mortgage lending has been boiling for three years.

In addition, a list of rejection rates for major lenders in the three cities was compiled.

Some of the banks, such as giant Citibank, are active lenders to minorities. But others, including Manufacturers Hanover Trust and Security Pacific National Bank, may have room for improvement.

Hanover and others involved in mergers have been the quickest to respond to the data, partly to dampen any protests by community groups. A number of banks, meanwhile, have begun extensive analyses of their lending practices.

Searching for Answers

"I believe that a lot of banks have begun some genuine soul-searching to see what the problem is," said New York attorney Warren Traiger.

As the experience of Atlanta shows, however, there may be no easy solutions. A much bally-hooed effort by a group of Atlanta banks to extend more loans to lower-income neighborhoods has produced high rejection rates for minorities and delinquency rates that are nearly twice the industry norm.

The Federal data, compiled under an amended Home Mortgage Disclosure Act, show that blacks nationwide were turned down 2.4 times as often as whites when applying for conventional loans to buy homes in 1990. Hispanics were turned down 1.5 times as often as whites.

While the accompanying tables focus on rejection rates, disparate rates by themselves are not proof of discrimination. The rates say nothing of the volume of minority applications that banks solicit, and the reasons behind rejections can be numerous. Furthermore, many lenders have their applicants screened by real estate agents and mortgage brokers.

However, many experts say the rates at least merit investigation.

LOS ANGELES

A Swift Backlash

Among the three cities studied, the rejection rates for whites and minorities were the least disparate in Los Angeles. But such comparisons are of little comfort to many in the city.

"So what?" said Los Angeles city councilman Mark Ridley-Thomas. "It is still a terrible record."

With that view in mind, city officials have moved swiftly.

Mayor Tom Bradley and the city council, based in part on concerns raised by the new data, have drafted an ordinance that would require banks and thrifts to disclose consumer, commercial, and mortgage lending data before bidding on city deposits. The rule must be approved by the council.

At the same time, councilmen Michael Woo and Michael Hernandez have written to Los Angeles' largest commercial banks asking for specific data from the Fed reports and other information on the banks' lending in low-income neighborhoods.

State Also Acts

The state government, too, is getting in on the act. For example, the California Assembly's Banking Committee held hearings earlier this month to discuss the data for the state's banks. A committee staffer said the hearings were "to open a dialogue" and "to make sure the [mortgage] numbers are better in the future."

Gilda Haas, head of Communities for Accountable Reinvestment, said her group is looking at the data community by community. "We don't have the resources to do exhaustive analysis of every bank," she said. Her group is focusing not so much on rejection rates, but on how many loans each institution makes in minority neighborhoods.

She praised Great Western Bank and Home Savings of America - the two largest thrifts in the nation - for making the most home loans in several neighborhoods studied so far.

The Fed data may have the biggest impact on BankAmerica Corp. and Security Pacific Corp. Because of their pending merger, community groups are poring over B of A's data with particular zeal.

Mayor Bradley cited the Fed data in a letter sent to BankAmerica chairman Richard Rosenberg late last month that expressed concern over the proposed merger.

So far, BankAmerica is the only bank that has made a big public relations push to put a good face on the data. In October, it announced measures to "enhance the availability of credit to lower-income and minority customers."

Better Record in Oakland

Among 10 leading lenders in the city, World Savings and Loan Association was the only institution whose rejection rates for both blacks and Hispancis were lower than the local average. The Oakland-based thrifts turned down blacks 1.4 as often as whites, and Hispanics 1.2 times as often as whites.

On the other hand, Security Pacific National Bank, the city's largest financial institution, showed the highest turndown rates for minorities compared with whites.

Security Pacific rejected blacks 2.7 times and Hispanics 2.4 times as often as whites in the Los Angeles-Long Beach area. The bank declined to comment.

Extra Efforts

CalFed, which also posted relatively high rejection rates for minorities, was at a loss to explain the results. CalFed has community lending officers in branches that go out and drum up business among minorities. The thrift also advertises in publications aimed at minorities.

"We expect that our 1991 data will be improved," said Rhanda Dunn, a vice president.

As in other cities, some Los Angeles bankers said the rejection rates don't tell the whole story.

For example, Great Western's frequency of rejections of blacks and Hispanics compared with whites was slightly higher than the area norm. But the thrift was the top lender in many minority neighborhoods of the city, said senior vice president Ian Campbell. In fact, he said, about 40% of the thrift's loans in California are made to minorities.

NEW YORK

Reviewing Practices

During the 1980s, minorities for the first time became the majority of the population in New York. So the question of whether mortgage lenders are discriminating against minorities is by no means an academic issue.

The Fed data have brought the issue to a head, revealing that local lenders turned down blacks twice as often as whites last year, and Hispanics 1.7 times as often.

"We're taking this seriously as a matter to explore and get to the bottom of," said Derrick D. Cephas, New York State's superintendent of banks.

Merger Partners Draft Plan

Among banks, the most dramatic response has come from Chemcial Banking Corp. and Manufacturers Hanover Corp., the merger partners. Although they deny discriminating, they have announced a new "five-point affirmative lending program."

It includes a second review for all rejected applications from lower-income neighborhoods, credit counseling for applicants with poor credit histories, and new loans designed especially for lower-income borrowers.

Manhattan Savings Bank, a unit of Republic New York Corp., rejected blacks 3.2 times as often as whites, the highest such frequency among 10 major lenders. Perhaps more important, Manhattan received only 59 applications from blacks, or just 3% of all its applications.

"We're taking additional steps to encourage more applications from minorities," said Republic spokesman Phillip Burgess.

Minority Clientele

Citibank, the market's largest mortgage lender, appears to be a heavy lender to minorities. Its turndown rates for whites and minorities are among the least disparate of major lenders. And Citi gets many of its applications from minorities - 27% from blacks, 19% from Asians, and 12% from Hispanics.

"It's a function of being as widespread in New York as we are," said spokeswoman Susan Weeks. "Nobody banks New York the way we bank New York."

Another big lender to minorities is Green Point Savings Bank. Although its rejection rate for minorities was lower than the rate for whites, all the rates were extremely low. Among all the loans it originated for which the race of the borrower was known, minority borrowers accounted for fully 60%. Green Point and Citibank were the only big lenders for which minority borrowers were the majority.

Despite such performances, government officials are clearly concerned about lenders' overall performance.

"It is unconscionable to require taxpayers to shell out billions of dollars to rescue banks that may have illegal and unfair lending practices," city Controller Elizabeth Holtzman said in a statement after the release of the data.

Herman D. Farrell, chairman of the New York State Assembly's Banks Committee, plans to hold hearings on the lending data, probably early next year. He said he plans to introduce legislation to "punish banks that continue to discriminate."

A Special Unit

Chase Manhattan Corp., for one, said it's sure its rejection rates among minorities and whites will become more even this year, thanks to a special unit started in the middle of last year to bosst lending to lower-income people.

Chase Home Mortgage Corp., Chase's most active originations unit in the city, turned down blacks twice as often as whites last year, and Hispanics 2.7 times as often.

Those frequencies were higher for Chase Manhattan Bank. It turned down 43% of black applicants, for example, versus 14% of white applicants. But as the special unit has gathered steam, the rejection rate for blacks has dipped below 20% this year, bank officials said.

"You'll see some startling changes in the bank's numbers," said spokesman Kenneth Mills.

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