Minorities not getting mortgages

Web posted November 13, 1998

By Patricia Lamiell
AP Business Writer

NEW YORK -- In these days of easy credit, Alice Scott of Houston was told her $20,000 annual earnings as a freelance hairdresser weren't enough to qualify for a $15,000 mortgage.

Elnora Thompson, of Dorchester, Mass., was turned down for an $80,000 mortgage although her gross salary after more than 20 years in the accounting department at Bell Atlantic Corp. was well over $20,000. ``My credit was good, I had the down payment, I had stock, I had collateral,'' she said.

Lucio and Peggy Sanchez of Littleton, Colo., were told that because they didn't have credit cards, they couldn't establish that they were a good credit risk, although Sanchez had steady work as a communications worker.

Each of these people wonder whether they were turned down for credit because of their race.

There were extenuating circumstances in all three cases. The Sanchezes had filed for bankruptcy protection in 1994 after both had been laid off. Thompson and her ex-husband had defaulted on a mortgage. Scott is self-employed.

But Scott and Thompson, who are black, and the Sanchezes, who are Hispanic, believe their applications got special scrutiny because they are members of minority groups.

They are members of Acorn, a national organization of community groups that released a study this week showing minorities were rejected for home mortgages at a much higher rate than white applicants from 1995-97.

Rejection rates for minorities rose even as a strong economy, low interest rates and easy terms allowed many families to buy homes for the first time.

``Instead of being able to take advantage of these good times to walk into new homes, African Americans and Latinos are having the doors slammed in their faces by lenders,'' said Gwendolyn Jacobs, president of Acorn's Brooklyn, N.Y., chapter.

Acorn (the Association of Community Organizations for Reform Now) studied data filed with the U.S. Department of Housing and Urban Development by 9,041 lenders in 35 cities. During the three years studied, the lenders examined took 4.91 million applications for conventional and government-backed home purchase mortgages and originated 3.48 million loans.

Acorn's study found nearly 33 percent of applications from blacks were rejected in 1997, up from 15 percent in 1995. Rejections of applications by Hispanics rose to 28 percent from 22 percent during the same period.

Blacks were 210 percent more likely than whites to be rejected in 1997, up from 207 percent in 1995, the Acorn study found. Hispanics were rejected 176 percent more frequently in 1997, up from 162 percent in 1995.

The study found minorities received a lower share of conventional mortgages, those without federal government backing, than whites. In 1997, blacks received 5 percent of conventional mortgages, down from 7 percent in 1995. Hispanics received 6 percent, down from 8 percent.

By contrast, minorities received a higher percentage of government-backed mortgages, suggesting they are steered to loans that can be easier to obtain but are sometimes more expensive, Acorn said. This was true although minorities were rejected for government loans at a higher rate than whites, just as they were for conventional loans, the study found.

``It is troubling to witness an industry that is only willing to extend credit when it is not willing to take any risks with minorities,'' said Patrick Woodall, Acorn's research director.

Representatives of the banking industry forcefully defended their lending records, which they say have helped push home ownership to over two-thirds of American families in the third quarter of this year.

Last July, Fannie Mae, the government sponsored housing corporation, reported that the perception that housing discrimination is a major obstacle to home ownership fell to 6 percent of homeowners surveyed, down from 18 percent in 1996.

In an April survey by Fannie Mae of black and Hispanic households, 40 percent said they had experienced discrimination in mortgage lending, down from 59 percent in 1993.

Judith Knight, director of community and securiity development at the American Bankers Association, said rejection rates were higher because banks are casting a wider net for applicants, prompting many more people of lesser means or less attractive credit profiles to apply.

``If you're getting more people into the system who aren't ready to purchase, it will look like you're declining more applications,'' Knight said. ``I don't believe that it's evidence of discriminatory treatment. It's not in banks' interest to do that.''

Knight said Home Mortgage Disclosure Act data, which served as the basis of the Acorn study, doesn't pick up more subtle aspects of an application's financial profile such as overall wealth, debt levels, cash on hand and credit history. ``When you're trying to find out why loans were rejected, the HMDA doesn't tell you that,'' Knight said.

Jonathan Pinard, president of National Home Mortgage in Hauppauge, N.Y., agreed, but said that is the reason why mortgage lenders sometimes unintentionally discriminate. Most conventional mortgages are structured to be sold into mortgage pools according to guidelines that in the end favor white borrowers, Pinard said. They don't account for non-traditional sources of income such as tsu-tsu accounts, which are informal, non-insured savings plans popular among some immigrant groups, Pinard said.

Acorn said that while there had been improvements in lending trends in the early part of the decade, ``many of the gains made by African Americans and Latinos have disappeared. The situation is growing worse by almost every measurement.''