JAMES DOUGHERTY
Feels ‘disappointment’
Between 1990 and 2002, the home purchase loan denial rate in Boston for the white population went from 16.4 percent to 7.7 percent, while the denial rate for blacks during the same time decreased from 25.3 percent to 17.3 percent. But although the numbers lessened, lenders are not pleased with the slow development during that period.
“I have a feeling of disappointment that there seems to be little improvement [in 12 years],” said James Dougherty, president of the Massachusetts Mortgage Association.
Lenders viewed a study done by Jim Campen of the University of Massachusetts at Boston’s Gaston Institute at the Fair Lending Summit sponsored last Wednesday by the MMA, Massachusetts Bankers Association and Massachusetts Mortgage Bankers Association.
Campen pointed out that while the denial rates have lessened, the disparity ratio between whites and minorities has worsened since the process began. In 1990, there was a disparity ratio of 2 between blacks and whites in Boston. In 2002, it increased to 2.42. The same year, the disparity ratio was 1.55 between Latinos and whites and 12 years later that number jumped to 2.25.
The same study looked at denial rates in Massachusetts and in 1998, blacks were denied at a rate of 14 percent while whites were denied at a rate of almost 7 percent. Four years later, whites were denied at 7 percent and African Americans were denied loans at a rate of 15.4 percent.
Campen’s study begged the question: Were different types of lenders more likely to deny a minority borrower? The numbers for Massachusetts banks and credit unions, independent mortgage companies, other banks and credit unions and subprime lenders all had similar denial rates. Subprime lenders did, however, come in with the highest denial rate.
“This is a problem across all lenders,” said Campen.
Campen’s study found that credit history, debt-to-income ratio, collateral, an incomplete credit application and insufficient cash were the top five reasons given for denial. Out of 4,609 total denials, Campen found that 30 percent were given without a reason.
“It’s easy to get used to [the denial rates],” said Campen. “But I think we should fight against getting used to these numbers.”
Education and counseling was one of the most popular suggestions for assuring fair lending happens. Julie Connelly, senior vice president of Citizens Bank in Boston, said education is important for all types of borrowers.
Christopher Dunn, senior vice president at South Shore Savings Bank, said credit and homebuying programs can help many people who may need basic financial information and guidance on resolving financial problems.
Roxbury-based Urban Edge, a nonprofit community development organization, offers about 17 homebuyer education classes each year with 330 graduating families annually. Around 80 of those families become homebuyers.
David Greco, vice president of credit policy at MGIC in Milwaukee, said he views the agencies providing education as another source for business. Greco said MGIC believes people who seek counseling should receive a discount on their mortgage and the agencies receive $350 for every closed loan.
Internal Affairs
Lenders also discussed what they can do internally to assure fair lending is happening at their companies.
Craig Williams, vice president and fair lending manager at Sovereign Bank, said a formal policy is in place for fair lending at his bank, adding that Sovereign also employs 15 compliance liaisons who are responsible for ongoing training and monitoring any “blips” in the underwriting.
Williams said 6,000 of the more than 8,000 employees at the bank are required to take the fair lending exam.
Dennis Corrigan, acting director at Fannie Mae in Boston, said the company has assisted lenders in reaching underserved communities by offering alternative products and has worked to address pricing discrimination in the lending field.
Laura Dorfman, senior vice president at Mt. Washington Co-operative Bank in South Boston, said a fair lending policy also exists at her institution.
Dunn and Dorfman agreed that hiring a diverse staff will promote fairness in lending, but Dorfman noted that finding hiring a diverse staff that is also well versed in the industry can be difficult.
Connelly said 40 percent of the originators employed at Citizens Bank are minorities.
The Massachusetts Community and Banking Council recommended providing fair lending, compliance and diversity training to teach employees about cultural or language barriers, as well as guide them to be sensitive to the needs of first-time homebuyers.
Peter Milewski, director of mortgage insurance funds at MassHousing, suggested lenders reach out to the underserved communities by offering bilingual marketing materials and building offices in underserved neighborhoods.
MCBC recommends that senior staff managers regularly track denials to ensure the process is effective. They also suggest companies adjust their compensation programs for staff members who work with lower-income applicants. Employees who work on commission may be discouraged to work with those applicants if they feel more time may be necessary to close a loan.
Because there will always be loan denials, MCBC recommends that lenders provide denied applicants with information on counseling options. Corrigan said when the lending industry fails to address the needs of a borrower, it creates a customer for a predatory lender.
Dougherty said the MMA has jumped on the fair lending bandwagon to determine what the association’s role can be. Because banks have been required to take the Community Reinvestment Act exam, fair lending has been an issue for banks, but not mortgage companies.
“Fair lending is becoming more and more a facet of the CRA exam,” said Cynthia C. Merkle, senior vice president at Eastern Bank.
As lenders try to reach out to minorities and create fair lending at their institution, the final step in the process is assuring long-term homeownership. All of the summit panelists agreed that it is crucial to match borrowers with loans they can sustain.
Jennifer Jope may be reached at jjope@thewarrengroup.com.
