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What do we know about racial discrimination in mortgage markets?

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The Review of Black Political Economy

Abstract

The article summarizes evidence regarding racially discriminatory acts in the mortgage lending market. Various information sources are considered: paired-testing studies, statistical studies of lending patterns and loan rejections, administrative histories, legal suits, case studies, and mortgage underwriting standards. The review demonstrates that, although there remain many unanswered questions about the scope and nature of racial discrimination in mortgage lending, there is sufficient evidence to conclude that the problem still exists.

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Notes

  1. We regard acts as discriminatory if they violate relevant provisions of the Equal Credit Opportunity Act or the Fair Housing Act (Title VIII of the Civil Rights Act of 1968). A lender in violation of fair lending laws would also fail to meet its obligations under the Community Reinvestment Act (CRA). We include home appraisals as part of the mortgage lending market. There are a host of other federal laws, two Executive Orders, and many state and local laws which prohibit or relate to discrimination in mortgage lending.

  2. For details, see M. Turner, R. Struyk and J. Yinger,The Housing Discrimination Study (Washington, DC: Urban Institute, 1991).

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  4. I. Ayres, “Fair Driving,”Harvard Law Review 104 (1991): 817–872.

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  5. G. Squires and W. Velez, “Insurance Redlining and the Process of Discrimination,”The Review of Black Political Economy 16 (1988): 63–75; Association of Community Organizations for Reform Now, “A Policy of Discrimination? Home Insurance Redlining in 14 Cities” (New York: Author, 1992).

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  6. All are reviewed in more detail in G. Galster, “The Use of Testers in Investigating Mortgage Lending and Insurance Discrimination,” in M. Fix and R. Stuyk (eds.)Clear and Convincing Evidence (Washington, DC: Urban Institute, 1993).

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  7. Center for Community Change,Mortgage Lending Discrimination Testing Project (Washington, DC: CCC/U.S. Dept. of HUD, 1989).

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  8. R. Wienk, “Discrimination in Urban Credit Markets: What We Don’t Know and Why We Don’t Know It,”Housing Policy Debate 3 (1992): 217–240.

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  9. For reviews of these methods and trie evidence produced thereby, see: C. Bradford,Redlining and Disinvestment as a Discriminatory Practice in Residential Mortgage Loans (with Dennis Marino), Office of Fair Housing and Equal Opportunity of the U.S. Department of Housing and Urban Development (Washington, DC: U.S. Government Printing Office, 1977); C. Bradford,A Tool for Community Capital: Home Mortgage Disclosure Act—1985National Survey—A Working Paper (with P. Schersten), Cooperative Community Development Program, Hubert Humphrey Institute of Public Affairs, University of Minnesota; A. Shlay, “Financing Community: Methods for Assessing Residential Credit Disparities, Market Barriers and Institutional Reinvestment Performance in the Metropolis,”Journal of Urban Affairs, 11 (1989): 201–233; G. Galster,A Statistical Perspective on Illegal Discrimination in Lending (Washington, DC: American Bankers Association, 1991); G. Canner and S. Gabriel, “Market Segmentation and Lender Specialization in the Primary and Secondary Mortgage Markets,”Housing Policy Debate 3 (1992): 241–329.

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  10. B. Dedman, “The Color of Money,”The Atlanta Journal Constitution, May 1-4, 1988. See also T. Blossom, D. Everett, and J. Gallagher 1988, “The Race for Money,”Detroit Free Press, (Aug. 12,1988).

  11. Illustrative of this group are: A. Shlay, “Maintaining the Divided City: Residential Lending Patterns in the Baltimore MSA,” (Baltimore: Alliance for Responsible Investment, 1987); S. Howe, “Residential Lending Patterns in Hamilton County, OH, 1981–1986.” (Cincinnati: Institute for Policy Research, Univ. of Cincinnati, 1988); A. Shaly, “Not in That Neighborhood: The Effects of Population and Housing on the Distribution of Mortgage Finance Within the Chicago SMSA,”Social Science Research 17 (1988): 137–163; G. Squires and W. Velez, “Neighborhood Racial Composition and Mortgage Lending,”Journal of Urban Affairs 9 (1988): 1217–232; Center for Community Change, “New Research Shows S and L’s Shun Low Income and Minority Neighborhoods” (Washington, DC: Author, 1989); C. Robinson, “Racial Disparity in The Atlanta Housing Market,”Review of Black Political Economy 19 (1991): 85–109.

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  18. G. Canner and D. Smith, “Home Mortgage Disclosure Act: Expanded Data on Residential Lending,”Federal Reserve Bulletin 77 (1991): 859–881; G. Canner, “Expanded HMDA Data on Residential Lending: One Year Later,”Federal Reserve Bulletin 78 (1992): 801–824; G. Squires, “Biased Lending,”Journal of Housing 17 (1990): 182–183.

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  19. G. Galster, “A Statistical Perspective… “; J. La Ware, “Testimony Before Committee on Banks of the NY State Assembly, Albany, NY,”Federal Reserve Bulletin 78 (1992): 193–195.

  20. Alicia Munnell, Lynn Browne, James McEneaney, and Geoffrey Tootell,Mortgage Lending in Boston: Interpreting HMDA Data Federal Reserve Bank of Boston Working Paper 92-7, (1992).

  21. Federal Reserve Governor John La Ware, quoted by Paul Wiseman, “Bankers Grumpy Despite Strong Profits,”USA Today, (Oct. 19,1992), p. 6B.

  22. G. Canner, S. Gabriel, and J. Woolley, “Race, Default Risk and Mortgage Lending,”Southern Economic Journal 58 (1991): 249–62.

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  23. G. Canner and S. Gabriel, “Market Segmentation and Lender Specialization…”

  24. ” Race, Default Risk…”

  25. M. Turner, R. Struyk, and J. Yinger,The Housing Discrimination Study.

  26. Laufman v. Oakley Building & Loan Company, 408 F. Supp. 489 (S.D. Ohio 1976), andHarrison v.Otto G. Heinzeroth Mortgage Co., 414 F. Supp. 66 (N.D. Ohio, 1976), supplemented, 430 F. Supp. 893 (N.D., Ohio 1977).

  27. Standards for establishing aprima facie case based on the race of the applicant were identified inThomas v.First Federal Savings Bank of Indiana, 653 F. Supp. 1330, 1338 (N.D. Ind. 1987). The standards are: (1) the applicant is a member of a protected class; (2) the applicant applied for and was qualified for a loan from the lender; (3) the loan was rejected despite the applicant’s qualifications; and (4) the lender continued to approve loans for applicants with qualifications similar to the applicant.

  28. Leonard McMillian et al. v.Huntington National Bank et ai, No. 85-7530 (N.D. Ohio May 24,1985).

  29. 576 F. Supp. 1100 (N.D. Ohio 1987).

  30. No. 91 C 7730 (N.D. 111. December 8, 1992).

  31. The Green’s case was the subject of aFrontline documentary produced by The Center for Investigative Reporting, “Your Loan is Denied,” which aired on PBS on June 23, 1992.

  32. U.S. Department of Justice news release, “Dept. of Justice Settles First Race Discrimination Lawsuit Against Major Home Mortgage Lender,” Sept. 17,1992. See alsoUnited States of America v. Decatur Federal Savings and Loan Association, No. 92-CV-2198-CAM (N.D. GA filed Sept. 17,1992).

  33. We chose these case histories because they are particularly revealing and powerful; they do not represent the complete set of possible cases. For additional illustrations, see: “Redlining,”The Economist, (July 22, 1989), pp. 23–24; Daniel Seligman, “Mortgage Moonshine,”Fortune, (Dec. 2,1991), pp. 183–184; Joel Brenner and Liz Spayd, “A Pattern of Bias in Mortgage Loans,”Washington Post, (June 6, 1993), pp. Al, A24–A25; idem, “Area Banks Have Worst Bank Access,”Washington Post (June 7,1993), p. Al, A8.; idem, “Bankers Describe Roots of Bias,”Washington Post (June 8,1993), pp. Al, A10.

  34. Testimony submitted by Donald Martin, Association of Community Organizations for Reform Now, Washington, DC Chapter, on Mortgage Lending Discrimination Before The Subcommittee on Housing and Community Development of the Committee on Banking, Finance, and Urban Affairs, U.S. House of Representatives, (May 7, 1992).

  35. “ L.A. Riots and the Black Tax,”The Wall Street Journal (May 12, 1992), p. A24.

  36. R. Wienk, “Discrimination in Urban Credit Markets…”

  37. J. Kushner, “Federal Enforcement and Judicial Review of The Fair Housing Amendments Act of 1988.”Housing Policy Debate 3 (1992): 537–600.

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  38. A suit was settled against United Guaranty Residential Insurance Company which had the result of eliminating a minimum loan amount for private mortgage insurance (PMI) coverage,Briceno v.United Guaranty Residential Insurance Co., No. 3:89 CV 7325 (N.D. Ohio). The case alleged that such a standard imposed a needless adverse impact upon minorities, who were most likely to seek the smaller mortgages and to need PMI.

  39. E. Kohn, C. Foster, B. Kaye, and N. Terris,Are Mortgage Lending Policies Discriminatory? A Study of 10 Savings Banks (New York: New York State Banking Dept., Consumer Studies Division, 1992).

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  40. A. Schnare, “Secondary Market Business Practices and Mortgage Credit Availability,” Paper presented at the Fannie Mae Annual Housing Conference, Washington, DC; Mortgage Bankers Association of America,HMDA Task Force Report (Washington, DC: Author, 1992).

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Authors
  1. Cathy Cloud
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  2. George Galster
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Cloud, C., Galster, G. What do we know about racial discrimination in mortgage markets?. The Review of Black Political Economy 22, 101–120 (1993). https://doi.org/10.1007/BF02689922

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