KEVIN KILEY
‘Proactive’ industry

The Latino community has once again been a focus in recent studies as a group that is unbanked and has a higher disparity in denial rates for loans compared to white borrowers.

State senators and consumer advocacy groups have released different studies in recent weeks focusing not only on Latinos, but also other minorities who have experienced higher denial rates when trying to get a loan.

The Association of Community Organizations for Reform Now released “The Great Divide 2004,” a mortgage lending disparity study, on Oct. 14. Chris Leonard, head organizer at Boston’s ACORN office in Dorchester, said the disparity rates were disappointing, especially when the Latino community was compared to white borrowers.

“We would have hoped in Massachusetts, with efforts to better provide for the credit needs of underserved neighborhoods, we wouldn’t be at the top of the list of disparities,” Leonard said.

According to the study, Latinos who made $96,000 or more a year had a 25 percent denial rate, whereas whites making the same salary had a 7.3 percent denial rate. Meanwhile, blacks in the same category had a denial rate of more than 20 percent. Those figures were based on conventional home purchase loans in the Boston metropolitan area.

The number of conventional loans made to all borrowers increased from 1993 to 2003. The study said because lending to minorities was at such a low level, the percentage increase in lending does not reflect the continuing lower volume of loans to minorities compared to whites and compared to their population.

The study also found that homebuyers in minority neighborhoods were more than twice as likely to be denied for a loan than homebuyers in predominantly white neighborhoods.

Minority neighborhoods – those with at least 50 percent minority population – comprise 13.3 percent of the census tracts in Boston. However, that group received only 7 percent of the conventional home purchase loans originated in 2003.

In national findings of the ACORN study, minority neighborhoods comprise 29.2 percent of the census tracts in the United States. The same group received 16.9 percent of the conventional home purchase loans originated last year.

The study also focused on subprime lenders who originated conventional home purchase loans to minority and white borrowers.

ACORN’s national findings show subprime lenders originated 25.4 percent of the conventional home purchase loans originated to blacks, 23.3 percent of the loans to Latinos and 8.2 percent of the loans to white borrowers.

However, Leonard said subprime loans have helped those who may not have been given a mortgage otherwise. As banks begin to offer more products designed to fulfill consumers’ credit needs, Leonard said, there will be fewer people who fall victim to predatory lenders. Still, he added, providing loans too often is not a good practice.

“More loans is not necessarily good because there are a lot of unnecessary loans,” he said.

Sen. Jarrett T. Barrios, D-Cambridge, said there is concern about the Latino community becoming prey for abusive lenders.

‘A Useful Tool’

“The concern here is that with the Latino community dependent on subprime lenders, some applicants will obtain predatory loans,” Barrios wrote in his report, “The Unbanked Latino: Expanding Banking Access to Latinos in Massachusetts.”

“Acknowledging both that subprime lending is a useful tool in accessing credit and that not all subprime lenders are predatory, the fact that there exist high levels of subprime lending in the Latino community leads one to conclude that those borrowers are likely to be targeted by predatory lenders,” he wrote.

Leonard said lenders need to better target the needs of Latino families and design programs catering to them.

“There is probably no one answer, but having more Latino loan officers certainly helps,” Leonard said.

Barrios suggested that banks should recognize the language barrier and make changes.

“Banks hoping to attract Latino clientele should develop attractive Spanish-language marketing materials,” his report reads. “In order for the Latino population to obtain adequate access to financial institutions, there must be a sufficient amount of bilingual staff to handle the volume of Spanish-speaking customers.”

Kevin Kiley, chief operating officer and executive vice president of legislative and regulatory policy for the Massachusetts Bankers Association, said efforts in the banking industry have been made to assure fair lending. He said MBA has run conferences on fair lending and financial literacy. Most recently, MBA and Barrios took part in an immigrant banking conference that focused on Latinos.

“Mass. Bankers and the banking industry have been proactive,” said Kiley. “Efforts by the industry continue to focus on strategies that will address concerns.”

For instance, Kiley said MBA is looking at republishing foreign-language brochures first introduced in the mid-1990s.

But Kiley concedes that the fight for fair lending isn’t over.

“Can more be done?” Kiley said. “Yes.”

Leonard said the study may highlight certain problems, but admits he doesn’t think lenders are denying loans on purpose.

“I don’t think there’s intentional discrimination,” Leonard said.

Kiley defended Bay State banks’ guidelines for securing a loan, saying when a person files a loan application and the bank finds income problems or a bad credit report, it becomes difficult to provide a loan. He added that there are efforts in the works to find a way for banks to perform a pre-application credit check and then work with the potential borrower.

In his report, Barrios suggested that banks accept alternative forms of credit history.

“An issue of concern for many Latinos is their inability to establish a credit history due to the stringent requirements necessary to begin that process,” Barrios wrote.

He went on to suggest that banks could use alternative underwriting guidelines for their products, such as rent and utility payments, in order to provide loans and help establish a borrower’s credit history.

The Federal Deposit Insurance Corp. has proposed changes to Community Reinvestment Act regulations that would increase the threshold of a small bank from $250 million to $1 billion and add a community development criterion to performance standards for institutions between $250 million and $1 billion in size that would evaluate a choice or combination of community development lending, investment and service activities – depending on community needs – and provide greater choices of lending activity for banks in rural areas.

“This study [‘The Great Divide 2004’] came at an important time,” said Leonard.

Leonard said ACORN believes the changes to CRA regulations will weaken CRA and widen the gap between minority and lower-income communities and white communities.

“We need to strengthen laws, not weaken laws,” said Leonard.

Kiley said banks in Massachusetts would continue their efforts to invest in their communities. He said he doesn’t see the FDIC’s proposal as a “significant” issue because most banks embrace CRA’s objective. He added that modifying CRA is an attempt to modernize the law, so it is not a regulatory burden on banks.

ACORN’s report looked at the differences in mortgage lending between 2003, 1998 and 1993. Data from more metropolitan areas were analyzed compared to past studies. Some 120 cities were studied and then ranked according to the racial and economic disparities in mortgage lending.