Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, December 11, 1994 TAG: 9412120059
SECTION: VIRGINIA PAGE: A1 EDITION: METRO
SOURCE: MIKE HUDSON STAFF WRITER
DATELINE: LENGTH: Long
Black applicants are three times more likely than whites to be turned down for mortgages from Roanoke Valley banks and savings and loans. In 1993, black applicants were turned down 15 percent of the time; whites were rejected 5 percent of the time.
The rejection rate for blacks actually dropped from 20 percent in 1992. Because the white rejection rate also dropped - from 7 percent in 1992 - the differences between the black and white rates remains high.
Nationally, conventional lenders turn down blacks about twice as often as whites.
Bank and S&L officials in the Roanoke Valley and beyond say that racism has nothing to do with the way they make loans. They say the loan rejection figures do not give a true picture of their efforts to make loans to minority homeowners, who, on average, have less wealth and lower incomes than white applicants.
Federal regulators have never taken action against any Roanoke Valley bank over its racial-lending patterns. Most of the banks have received satisfactory ratings or better for their compliance with the Community Reinvestment Act, which requires that banks and S&Ls serve all neighborhoods in their communities regardless of race or income.
But critics such as the Rev. Charles Green, president of the Roanoke chapter of the National Association for the Advancement of Colored People, say the figures reflect continuing discrimination against minority consumers.
In the Roanoke Valley, black applicants are more likely to be rejected even when their incomes are similar to - or higher than - white applicants.
For example, black families earning $50,000 to $70,000 a year were rejected 23 percent of the time in 1993. White families earning less than $30,000 were rejected 12 percent of the time.
Federal lending figures also show that the Roanoke Valley's banks continue to make relatively fewer loans in low-income neighborhoods, black or white.
But the greatest differences in lending patterns can be seen in the rejection rates for blacks and whites.
In the Roanoke Valley in 1993, for example, First Union Bank and its predecessor, Dominion Bank, rejected 39 percent of blacks and 19 percent of whites.
Green of the Roanoke NAACP contends that prejudice by banks and S&Ls forces many blacks to turn instead to high-rate finance and mortgage companies. Too often, he said, this lack of choice leaves black borrowers vulnerable to price-gouging and fraud.
"It's an old tradition of prejudice," Green said. "You've definitely got two economies. You've got a black economy and a white economy."
Bankers and S&L executives say they are taking more applications than ever from black homeowners. Federal statistics show that while rejection rates for blacks remain high, the number of blacks who applied for home loans from Roanoke Valley banks and S&Ls grew from 1992 to 1993 - from 367 to 591.
"We want to make loans. We're trying to make all the loans we can," said Bruce Hodge, vice president for community reinvestment for Charlotte-based First Union Corp. "I would love to tell you we could achieve a 1-to-1 balance and hit a parity. But I think that's a long time away for any institution because of long-term problems in our country. Economics and politics have worked against minorities, and I don't think banks alone can fix that."
Bankers say the rejection-rate comparisons are flawed because they do not take into account factors besides income that help banks decide whether to make a loan - including credit history and total debt.
However, a 1992 study by the Federal Reserve Bank of Boston did take those factors in account - and found that minority applicants in Massachusetts still were about 60 percent more likely to be turned down for mortgages than whites.
Green and other critics say the problem is worse than the rejection rates indicate because the legacy of segregation and racism has discouraged many minority consumers from even trying to put in an application with a bank or S&L.
What's worse, the critics say, is that blacks who are unfairly turned away from competitive-rate mortgages - or don't apply because they believe they have no chance - end up paying thousands of dollars more for credit from high-interest consumer-finance and mortgage companies. These "non-bank" lenders frequently collect interest rates and fees that are twice as high as what banks and S&Ls charge. Some have been accused of preying on black consumers and others who have been locked out of the mainstream credit market.
Green said the lack of affordable credit in black neighborhoods provides an opening for high-rate lenders who aggressively market in these areas. "I don't guess that a week goes by that I don't get something in the mail from somebody who wants to give me a second-mortgage loan on my home - just because of my address."
A study in the Richmond area this year by Telamon, a nonprofit housing advocacy group, found that higher-cost consumer finance companies make mortgage loans primarily in minority and lower-income neighborhoods where bank credit is scarce. These companies include United Companies Financial Corp., Associates Financial, Beneficial, Household and Commercial Credit.
\ The controversy over race, income and mortgages has been swirling for three decades. In the past, bankers "redlined" entire neighborhoods, refusing to make home loans because of their racial makeup or their residents' lower incomes.
Federal law now outlaws such practices. Lenders cannot discriminate on the basis of race. In addition, banks and S&Ls - whose deposits are insured by the federal government and taxpayers - are required to make real efforts to serve all neighborhoods in their service areas.
The battle over "redlining" and "community reinvestment" heated up in the mid-1980s after federal officials began releasing statistics showing banks' and S&Ls' rates for white and minority applicants.
A 1989 Atlanta Journal/Constitution study of mortgages by savings and loans ranked Roanoke dead last among the 50 largest Southern metro areas: Blacks were turned away for mortgages by a 4.2-to-1 ratio compared to whites. The national average at the time was 2.1-to-1.
Bank and S&L executives say the differences in rejection rates are not evidence of institutional racism. Lenders say that because blacks are on average less wealthy than whites, they tend to have smaller savings and higher debt loads that hurt them in the application process.
First Union officials say that 90 percent of the applicants who were turned down for mortgages in 1993 were rejected for one of two reasons: poor credit histories or overall debts that were too high a portion of their incomes. This was true for blacks and whites.
Hodge, the First Union vice president, says there are better ways than rejection rates to measure minority-loan efforts. For example, the Roanoke area has a minority population of 13 percent, and First Union made 10 percent of its mortgages last year to minority borrowers. That still shows a disparity, but it is less of a difference than what rejection rates show.
Alvin Nash, housing director for the nonprofit Total Action Against Poverty, said education and history have more to do with higher rejection rates for blacks than does race.
Nash said blacks traditionally have been worse off economically than whites and are less likely to grasp the importance of using home ownership to build up equity in their financial lives.
"I don't think there's a color distinction" in the way banks and S&Ls make loans, said Nash, who is black.
Most critics don't argue that banks and S&Ls purposely turn away applicants because they are black. But they say subtle prejudices still exist, in the minds of mostly white loan officers and in underwriting policies that unintentionally discriminate against blacks.
The 1992 study by the Federal Reserve Bank of Boston looked at the factors bankers say are crucial to deciding who gets a loan - employment history, credit history and many others.
The Boston Fed found that, even when those factors are taken into account, blacks and Hispanics were turned down more than whites - at a ratio of about 1.6 to 1.
Federal Reserve officials said the study - which looked at 3,000 loan applications to 131 Boston-area lenders - provided "conclusive evidence of de facto discrimination." They blamed subconscious cultural biases rather than blatant racism.
Minority borrowers with unblemished applications were not turned down. But researchers found the majority of borrowers - regardless of race - had a flaw in their credit records or other problems that might cause a rejection. In "gray area" cases, white loan officers appeared more willing to take a chance on white applicants than on blacks or Hispanics.
"You may be more willing to take a chance and go out on a limb for somebody who is more like you," said Ann Schnare, a housing economics expert with the Federal Home Loan Mortgage Corp.
Wall Street Journal columnist Tim W. Ferguson explained the problem this way: Because a lower percentage of minorities are familiar with banks, fewer apply for loans, and those who do may not be as prepared as the average white borrower.
At the same time, borrowers with borderline applications are more likely to succeed if they can get help from loan officers. But, Ferguson wrote, whites apparently are given more "coaching" to overcome bad blips on their credit reports, and their applications show more paperwork as a result - "the so-called thicker-file phenomenon."
\ Race is not the only factor in the lending-bias debate. Community activists complain that low-income and blue-collar neighborhoods, black and white, are being unfairly starved of competitively priced credit.
Federal statistics show Roanoke Valley banks and S&Ls are more likely to turn down loan applications from people living in lower-income and working-class white neighborhoods - such as parts of Southeast Roanoke - than in more affluent areas.
In the two census tracts making up the least-affluent portion of Southeast Roanoke, banks and S&Ls turned down white mortgage applicants 9 percent of the time. That is lower than the rate for blacks throughout the valley, but higher than the 5 percent valleywide rejection rate for all whites.
Bankers say they are working to make credit available to all parts of the valley. Many banks and S&Ls offer special classes for first-time homebuyers and "community reinvestment" loan programs designed for people with modest incomes. First Union recently won a Virginia Governor's Award for its efforts to provide housing to low- and moderate-income citizens.
But lenders say they cannot make loans that run a high risk of not being repaid - and families with lower incomes and savings obviously are greater default risks. They say requiring them to make risky loans would force them to pay for social ills over which they have no control.
"A bank operates within the community it serves," said Jane Henderson, a vice president for First Union in Roanoke. "You cannot separate what we're doing from what's going on in the educational system, or the employment system, all of these things that affect individuals."
Some community activists say the conventional wisdom does not hold true. They point to a 1992 study by Mortgage Insurance Companies of America that concluded wealthier homeowners actually were higher credit risks than less-affluent borrowers.
The study - which looked at $300 million in home loans - found borrowers with mortgages of $200,000 or more were more likely to default than the average home buyer. People with less expensive homes - under $50,000 - were consistently better than average in repaying their loans.
Dale Allen, the former president of a Southeast Roanoke neighborhood group, Southeast Action Forum, believes the valley's banks are genuinely trying to offer credit to low- and moderate-income borrowers.
"I think the federal government has the attention of all the banks in town," Allen said. "They're ready to move now - I hope. They've been giving lip service and they've been writing the memos. That's usually the precursor in business before something gets done."
The problem, Allen said, is that banks traditionally have preferred to make larger loans, which bring faster profits.
But now "the willingness is there. The money is there. The banks just need a way to get the money to the people."
Former staff writer Lon Wagner contributed to this story.
by CNB