Tanya Duncan – Education needed
Despite educational efforts and community outreach programs, lending disparities in the nation and particularly in Massachusetts continue to rise.
Blacks in Brockton, in particular, have experienced a substantial increase in denial rates for conventional mortgages, according to The Great Divide, a newly released report analyzing racial and economic disparities in home purchase mortgage lending. The report, generated by the Association of Community Organizations for Reform Now, analyzes information obtained by the federal government as part of the Home Mortgage Disclosure Act.
In addition to national analysis, the study focused on Springfield, Boston and Brockton in the Bay State.
Denial rates for blacks seeking conventional purchase loans in Brockton rose while denial rates decreased for Latinos and whites, according to the study.
Blacks experienced a 25.32 percent denial rate in 2000, which is a 50 percent increase from 1999’s rate of 16.88 percent. For Latinos, the rates decreased from 23.26 percent in 1999 to 19.09 percent in 2000. The denial rate for whites in Brockton decreased to 9.55 percent in 2000 from 10.52 percent in the prior year.
A spokesman for Brockton Mayor John Yunits said the mayor, after seeing the report, requested more information from area banks to explain the findings.
In Boston, denial rates also increased for blacks, reaching 24.09 percent in 2000, up from 20.51 percent in 1999. Latino denial rates in the Hub increased to 18.84 percent in 2000 from 15.39 percent in 1999.
Springfield’s minority population didn’t fare any better, with blacks being denied at a rate of 30.50 percent. Denial rates for Latinos in the city, however, decreased to 21.38 percent in 2000 from 22.04 percent.
The study also analyzed minorities in upper-income earning brackets, revealing similar rates of disparity.
Boston banks are really denying people of color, especially African-Americans, a lot more now. Especially with home mortgage lending, they’re really denying African-Americans a lot more than they have in the past. Before, it wasn’t quite that bad, but it is now, said Maude Hurd, president of ACORN.
I think the study appears to be a cause for concern, but it fails to account for other factors for possible rejection, such as poor credit history, high debt-to-income ratios and other variables, said Tanya Duncan, director of federal regulatory and legislative policy for the Massachusetts Bankers Association.
We’re not denying there may be a problem, we’re just saying this study alone is insufficient to determine why this discrepancy exists, she said.
ACORN’s Lisa Donner agreed that without examining the data it is difficult to say why, particularly in Brockton, denial rates for minorities have increased so much.
Sometimes denials go up if applications go up a lot. In some ways, that is a sign that the banks are doing a part of their job right. If they’re being more aggressive about soliciting applications and making them available, it may be that more people that wouldn’t have thought of applying before – some of whom are not ready, honestly – will apply, so denials go up, said Donner.
Obviously, in order to make progress, you’ve got to do both things right. You’ve got to have a decent number of applications coming in and you have to have a decent number of yeses to those applications, she said.
Latinos, however, fared better in most instances than blacks. Donner said that might be due to the attitude change many banks have had in regard to Latino borrowers.
Some of the progress is about people recognizing, having been pushed by community organizations in many cases, that some of what used to seem like neutral underwriting wasn’t neutral and had a disparate impact … For example, if you have rules about how much of a down payment has to be from the borrower and how much can come from family members or can come as a ‘gift,’ those can end up being more restrictive than they should be, especially for immigrant borrowers, she said. Immigrants are more likely to have significant family contributions from outside of the immediate family toward down payments. Donner said for many immigrant populations, that is a normal fact of economic life.
But if that money doesn’t count, if you can’t use gift money for more than a certain portion of your down payment, then you’re excluded from homeownership, said Donner. So on the one hand, lenders have made progress in reaching out to the immigrant community but still fail to see the barriers they place in front of them.
Knowing the Score
Duncan said banks have improved tremendously over the past 10 years in their outreach and education efforts, especially in areas like Brockton and Chelsea.
What we have now is that some of the borrowers may not be as well-qualified or may not be as ready to get a loan. I think we’ve done a very good job in educating people to come to the banks, but more education needs to be done, said Duncan. For some of the borrowers, it may just be a matter of helping them work on their credit histories, she said.
Donner said banks can do a variety of things to help improve the numbers. Education is part of the answer, as is increasing the numbers of applicants. But one answer, a push to rely less on credit scores as a tool to weed out less desirable borrowers, may be more difficult.
There are pieces that impact people in different ways, in unfair ways, that go into that credit score. For example, it counts against you in your credit score if you have a loan from a subprime lender. Minorities, and African-Americans in particular, overwhelmingly have loans from subprime lenders. It doesn’t matter even if you paid that loan on time, it [still] counts against you on your credit score, said Donner.
Although the numbers revealed in the study are alarming, Duncan said it doesn’t reflect the whole picture.
This study really looked at conventional mortgage programs, and a number of banks have developed programs that are specifically designed to help marginal credit borrowers get into their first home. The study doesn’t look at the Soft Second Program or others throughout the state, said Duncan.
Duncan also pointed out that although the study indicates disparities, the state banking commissioner examines commonwealth banks to ensure they are complying with Community Reinvestment Act requirements, and nearly all the banks in the state have received satisfactory or higher CRA ratings.
There are a number of mortgage lenders not subject to CRA and this study includes a number of mortgage lenders outside of CRA, said Duncan.
That statement opened old wounds for the mortgage lenders in the state who oppose a bill that would extend CRA requirements to mortgage lenders.
Susan Zuber, president of the Massachusetts Mortgage Bankers Association, said it’s like comparing apples to oranges. CRA is required of banks because they take deposits from the community.
One could argue that lenders are providing a service by going into communities and making homes available, she said. Additionally, mortgage lenders do provide loans to minorities and low-income clients but can only provide loans to those who meet the guidelines of investors who will buy the loans from mortgage companies. Only about 20 mortgage lenders in the state service their own loans; most sell them on the secondary market.
I can speak for the legitimate lenders in this association. They need to price for risk. And in as much as they can do that, lenders are making loans available, she said.
Additionally, Zuber pointed out that the ACORN study doesn’t take into account the credit scores of borrowers.
That’s right, said Donner. We’re not looking at credit scores because we can’t – because the data’s not there. We’d love to. The only study we’re aware of, where people did look at credit scores, was the one the Boston Fed [Federal Reserve Bank] did in the early ’90s. They found that the racial disparities persisted even if you looked at credit scores, she said.
But all the arguments disputing the study’s findings don’t impress Hurd.
You know, every year the banks claim that they’re doing much better, but every year it seems to be getting worse … I’m sort of disappointed in the banks in Massachusetts, said Hurd.
