In a review of records from every savings and loan in metro Atlanta, federal officials found that black applicants for home loans were rejected two to four times as often as white applicants from 1981 to 1987.
The review, contained in a report to Congress released Friday, is the first time bank regulators have revealed a racial difference in the result of loan applications. Previous indicators of lending discrimination were limited to the location of loans made, with no information about applications.
The Federal Home Loan Bank Board, which regulates savings institutions, released annual rejection rates for 36 Atlanta savings institutions combined, but not for individual institutions. The 36 include many of the area's most active lenders. Other agencies would not release rejection rates for banks.
The statistics were disclosed as four federal agencies responsible for enforcing fair-lending laws responded to "The Color of Money," a series of articles published May 1-4 in The Atlanta Journal-Constitution. The articles described a widening gap in the number of loans made in white and black areas by metro Atlanta banks and savings institutions.
The statistics in the series are correct, the agencies said in letters to Congress released Friday.
"We have no disagreement with some of the basic findings of the Atlanta Constitution series," wrote Robert L. Clarke, comptroller of the currency. "Some segments of the Atlanta community are probably not serviced by financial depository institutions as well as other segments are."
It is clear, the agencies said, that Atlanta banks and savings and loans have not aggressively sought the business of black homebuyers, whether in poor neighborhoods or the affluent neighborhoods of the mayor and other prominent blacks.
The regulators said strongly, however, that the lending patterns do not by themselves prove that banks discriminate.
"Institutions could be purposefully discriminating against home purchase loan applicants from minority neighborhoods. . . . Detection of discrimination in lending is difficult, particularly since it rarely is done overtly," wrote Alan Greenspan, chairman of the Federal Reserve. "Therefore, one cannot conclude absolutely that no racial discrimination exists in residential lending in Atlanta."
The agencies said further study, such as testing by using black and white applicants with identical economic situations, would be necessary to determine whether banks discriminate against blacks. None of the agencies, however, urged that such testing be done.
Lapses in Enforcement
The regulators made their comments in letters to Sen. William E. Proxmire (D-Wis.), chairman of the Senate Banking Committee. He had asked the four agencies in May to "investigate the statistics in this series of articles and report to the committee your findings, as well as any action you intend to pursue."
Mr. Proxmire released the letters Friday from the Comptroller of the Currency, the Federal Deposit Insurance Corp. (FDIC), the Federal Home Loan Bank Board and the Federal Reserve Board.
The agencies acknowledged lapses in their enforcement of the Community Reinvestment Act, which says banks and savings and loans, because they accept deposits, have "an affirmative obligation" to make loans throughout their communities.
The Federal Reserve said it will begin an annual examination similar to the Journal-Constitution study on each bank and will provide the bank with a copy. The Comptroller also said it will consider studying loan data more carefully. The FDIC said it may stress to banks more strongly the importance of participating in Federal Housing Administration (FHA) and Veterans Administration (VA) loan programs. The Federal Home Loan Bank Board said it will meet with all savings institutions to "review the issues raised in the series" and encourage participation in local community investment programs.
The agencies began their reports by saying they had independently verified the Journal-Constitution statistics. Computer analysis, based on lenders' reports to the government, confirmed that banks and savings and loans in metro Atlanta made five times as many home-purchase loans per 1,000 structures in middle-income white areas as in black areas of the same income from 1981 to 1986. These differences persisted even after accounting for differences in neighborhoods, such as family income, the number of single-family homes and the number of home sales.
Black Homebuyer Not Sought
The agencies did not take issue with the newspaper findings that some banks had closed branches as areas changed from white to black or integrated; kept offices open fewer hours in black areas than in white areas; accepted mortgage applications only in offices near white areas; enforced minimum loan amounts that lock out lower-income customers, many of whom are black; chose not to offer VA and FHA loans that may be preferred by homebuyers with fewer assets, particularly blacks; and made few of their Small Business Administration loans to minority-owned businesses.
The Federal Reserve also interviewed real estate agents in black neighborhoods, who confirmed that they were rarely called on by bank or savings and loan officers.
"It appears that depository institutions could garner a larger share of the home loan (both government-backed and conventional) market in predominantly minority middle-income communities if they adopted more aggressive marketing programs," Mr. Greenspan wrote. "At least some real estate agents perceive that the banks and savings institutions are disinterested in the minority neighborhoods."
In other comments on the articles, the bank regulators said:
-- They have received few individual complaints of discrimination and have substantiated no racial discrimination complaints in mortgage lending in metro Atlanta in recent years.
-- Establishment of $72 million in loan pools by nine lenders since the articles were published "tends to corroborate the Atlanta study's conclusions that some segments of the community may have been inadequately served by at least some lenders," wrote Mr. Clarke. "The Atlanta Constitution articles clearly accelerated interest in meeting (fair lending) objectives on the part of national banks."
Policies Should Be Reviewed
Banks should reconsider lending policies, the Federal Reserve wrote, especially the decision by some banks not to offer VA and FHA loans and to enforce minimum loan amounts. Overly conservative appraisals in black neighborhoods also could result in fewer loans there, the Federal Reserve wrote.
-- The agencies agreed with the newspapers' conclusion that the rate of home sales could account for part, but not all, of the lending disparities. In a newspaper study of home sales for one year in 16 of the 64 middle-income black and white neighborhoods, homes were sold twice as often in the white areas. In that sample, the number of loans from banks was about five times greater in white areas than in black areas. The federal agencies did not duplicate that research.
-- It is not clear whether blacks who receive loans from lenders other than banks and savings and loans are paying higher interest rates or otherwise suffering, the agencies said. They did not study the question and did not propose that mortgage bankers, finance companies and other lenders be studied to find the answer. "All the answers to the patterns of loans evidenced by the Atlanta Constitution study simply don't exist," wrote Mr. Clarke, the comptroller.
-- The agencies did not accept the newspapers' estimates that banks and savings and loans return an estimated 9 cents of each dollar deposited by blacks through home loans to black neighborhoods, but 15 cents of each dollar deposited by whites through home loans to white neighborhoods. Insufficient data is available to make that judgment, they said.
"A more comprehensive and appropriate measure of neighborhood investment would include all forms of credit received by consumers and businesses located in a neighborhood," Mr. Greenspan wrote.
-- Contrary to the statistics for home-purchase loans, banks and savings and loans reported more home-improvement loans to middle-income black neighborhoods than to white neighborhoods, the regulators said. But they pointed out that those numbers could be skewed because lenders are often confused about whether they should count home equity lines of credit as home-improvement loans. "Home improvement loans may not always get reported as housing credit," Mr. Clarke wrote.
No Comment on Rejection Rate
The agencies did not comment on the rejection rates released by the Federal Home Loan Bank Board.
The agency's chairman, M. Danny Wall, included the rejection rates without comment in the middle of his four-page letter. Later in the letter he says, "In summary, our review does not suggest intentional discrimination by thrift institutions in the Atlanta area." He could not be reached for comment Friday.
The annual rejection rate for blacks ranged from 1.8 to 3.7 times the white rejection rate over the seven years, his letter says. He did not say if those figures were increasing or decreasing, although Rebecca Vail, a local spokeswoman for the Bank Board, said the disparity between the rejection rates for whites and blacks was smaller in the last half of 1984 and the last half of 1987.
Mr. Wall also noted that black applicants accounted for only 5 percent of mortgage loan applications at savings institutions in metro Atlanta during the seven years.
"Observed disparities in mortgage lending activity are thus attributable in significant part to the fact that thrift institutions in the Atlanta (metro area) receive very few mortgage loan applications from black applicants," Mr. Wall wrote.
"This clearly requires careful review of advertising, marketing, and loan production activities during individual examinations."
Other agencies have refused to release similar figures for banks, as have the individual banks. The Journal-Constitution study included rejection rates volunteered by the state's two largest savings institutions. Fulton Federal Savings and Loan rejected black applicants for home loans 3.6 times as often as whites from 1985 to 1987. Georgia Federal Bank's variance was 4.2 times in 1987.
The rejection rates tell nothing about the creditworthiness of those who applied. However, many real estate agents said they don't refer homebuyers to lenders unless they can qualify at least on the two most important lending criteria: income and debt. Some agents also have lenders "pre-qualify" applicants, or check their credit history, before an application is made.
The issues raised in the newspaper series are also being examined by the U.S. Department of Housing and Urban Development and the U.S. Justice Department.
The Justice Department had agreed to wait for the agencies' responses before deciding whether or not to subpoena loan application files and other documents to look for possible violations of the Equal Credit Opportunity Act.
Go to the next article or back to the Color of Money index or Power Reporting
Reprinted with permission from The Atlanta Journal and The Atlanta Constitution. Further reproduction, retransmission or distribution of these materials without the prior written consent of The Atlanta Journal and The Atlanta Constitution, and any copyright holder identified in the material's copyright notice, is prohibited.
Please send comments and story ideas to Bill Dedman, Bill@PowerReporting.com
Home page: Power Reporting