Home Loans Should Be Colorblind

BANKS and other mortgage lenders have long been accused of discriminating against mortgage applicants in low-income, predominantly minority neighborhoods. Lenders have denied the charge, insisting that the dearth of home loans to minority applicants stems from standard credit-risk analysis, not from discrimination.But a comprehensive study of home-loan data released by the Federal Reserve last month reveals that black and Hispanic homebuyers are far more likely to have their mortgage applications rejected than white applicants in the same income strata. The Fed report is based on 5.3 million loan applications received by 9,300 banks and other mortgage lenders in 1990. It shows that among poor mortgage applicants (those with less than 80 percent of an area's median income), 29.4 percent of applications from blacks and 22.4 percent of applications from Hispanics are rejected, but only 14.7 percent of applications from whites are turned down. The ratios hold roughly constant through successively more affluent groups of homebuyers. Even among applicants wit h more than 120 percent of an area's median income, 20.8 percent of applications from blacks and 14.2 percent of applications from Hispanics are rejected, in contrast to just 8.6 percent of applications from whites. The study does not alone prove that mortgage lenders have discriminated by race. In many cases, lenders say, minority applications may be rejected owing to the condition of the house being purchased, to a borrower's insufficient credit or earnings history, or to other standard loan criteria. Nevertheless, the Fed report shifts to lenders the burden of proving that bias has not been a factor in their home-loan patterns. And it imposes on bank examiners a higher standard of vigilance in verifying that lenders are complying with anti-bias laws. Also, lenders should reexamine their traditional loan criteria to ensure that they adequately reflect financial practices among low-income groups. Many low-income renters, for instance, are accustomed to paying, faithfully and promptly, a higher percentage of their gross income for shelter than is commonly thought prudent by bankers. Such people generally are safe home-loan risks.