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Lending in Minority Neighborhoods Improves

FFIEC study utilized data from over 8,000 lending institutions

August 2, 2004


A recent study showed that although minority groups continued to be slightly more likely to be denied a mortgage loan in 2003, lending in minority and poor neighborhoods skyrocketed.

The Federal Financial Institutions Examination Council reported denial rates rose within one year for American Indians and native Alaskans, Asians and Pacific Islanders, and Hispanics, while they decreased for blacks, and remained steady for whites.

The Council, which reports denial rates annually and whose members consist of regulating agencies, gathered the data from 8,121 banking institutions, mortgage companies and other lenders required to report loan data under the Home Mortgage Disclosure Act.

The 2003 loan data reportedly showed that the denial rate for American Indians and native Alaskans rose to 24% from 23.3% a year earlier. For Asians and Pacific Islanders, the rate continued to be less than for whites, yet edged up to 11.4% from 9.8%, and for Hispanics it rose slightly to 18.4% from 18.2%. The denial rate continued to be highest for blacks, although it did decrease to 24.3% from 26.3%. For whites, the rate held at 11.6%.

The group noted that the extent to which racial discrimination may account for remaining differences in denial rates across racial and ethnic lines cannot be determined by HMDA data alone. While differences in income levels among the racial or ethnic groups account for some of the disparities among their denial rates, there are other important factors given that for all income groups, white and Asian applicants experienced lower rates of denial than the other groups.

The most frequently cited reason by lenders for the denial of a single-family home loan application, regardless of the applicant's race or ethnic status, continued to be poor or no credit history, the Council said. This was the factor cited in 36% of the denials for Native Americans, in 33% of the denials for blacks, 30% for whites, 28% for Hispanics, and 19% for Asians, according to the study. But, the denials due to this factor decreased from 2002 for all racial groups.

Adjusted 2003 data showed predominantly minority and poor neighborhoods experienced the greatest increase in home purchase lending.

In neighborhoods where minorities make up 80% to 100% of the population, lending jumped by 14.5%, according to the report. In poor neighborhoods, in which the median family income 80% or less than that of the surrounding metropolitan area, mortgage loans surged by 15.6%.

The study also found that mortgage lending to Hispanics increased by 18% from 2002 to 2003, and 15% for blacks. Those numbers compare to an 11% increase in mortgage lending to whites.

"This is solid progress in closing the homeownership gap," said Joe Belew, president of the Consumer Bankers Association, in a written statement. "It is the latest evidence of payoff in the multiyear effort to promote homeownership among all segments of society. Mortgage loans to Hispanics outpaced loans to whites by 64%, while lending to blacks surpassed lending to whites by 36%."

ACORN, or the Association of Community Organizations for Reform Now, also studies home loan data annually and has also found minorities are more likely to be denied for a loan, but has found that subprime lending prevails in minority neighborhoods.

In their latest annual The Great Divide 2003, a study of mortgage data from 2002 for 115 U.S. metropolitan areas, the consumer advocate group said the disparity between minority and white denial rates is present even when comparing minority applicants with white applicants of the same income and is even more pronounced for borrowers at higher income levels -- upper income African-Americans and Latinos were rejected more frequently than whites of moderate-income, which is about half as large as upper income.

ACORN stated that minority borrowers are much more likely to be offered a subprime loan than a prime loan. In 2002, subprime loans made up 26.4% of the conventional home purchase loans received by blacks, they made up 20% of the conventional purchase loans to Latinos, as compared to 7.5% to whites.

"Precisely because traditional banks and mortgage companies have excluded too many lower income and minority families from the economic mainstream, and failed to provide the necessary credit, this need has been filled by subprime lenders offering loans with higher interest rates, more fees, and less beneficial terms," the consumer advocate group said.

Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.

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