Note: Calvin Bradford is a senior fellow at the Hubert Humphrey Institute of Public Affairs of the University of Minnesota. He served as an unpaid consultant to The Atlanta Journal-Constitution, assisting in research for the series `The Color of Money.'
The recent Atlanta Journal-Constitution series on discrimination in mortgage lending ("The Color of Money") has played an important role in rekindling concern for discrimination in credit and discrimination in general -- not only in Atlanta, but in other parts of the nation as well.
I was dismayed, but not surprised, to see that George Benston of Emory University tried to discredit this study (Perspective, June 19). He has a reputation as an apologist for the financial industries, having worked as a consultant for federal regulatory agencies and members of the real estate and lending industries, including the First National Bank of Atlanta.
Benston's comments fail to score a single point. He claims that the Journal-Constitution study was flawed because it looked at regulated lenders (banks and savings institutions) but not at mortgage companies. He states that mortgage companies specialize Federal Housing Administration (FHA) insured mortgages, which he claims are demanded by people with "less wealth, and blacks tend to be less wealthy than whites. . . . "
He suggests that there may be no demand for home loans that is not already being served by mortgage companies, and that it therefore makes no difference whether regulated lenders serve these minority communities. Finally, he cites some studies, including his own, to show that redlining does not exist.
The claim that regulated lenders need not serve all communities -- and thus need not bring the full range of lending instruments to minority markets -- stands in striking contrast to the civil rights laws affecting credit. Regulated lenders are covered by the Fair Housing Act, the Equal Credit Opportunity Act and the Community Reinvestment Act. The Community Reinvestment Act requires that these institutions make an "affirmative" effort to serve the needs of all the people in their communities.
No one would claim that a lunch counter could deny service to blacks as long as there were other lunch counters, with somewhat comparable food, that did serve blacks. The same is true of the civil rights obligations of lenders. Failing to serve black communities is a violation of civil rights laws, even if there are some other lenders who serve minorities or minority communities.
It is not necessary to study mortgage companies to determine whether regulated lenders discriminate in their own patterns of lending. The Journal-Constitution study covered all regulated institutions. The major lenders were the focus of special attention, inasmuch as their violations of non-discrimination and affirmative marketing obligations are most critical to the community.
In addition, the study reviewed all mortgage lending in certain communities. This simply confirmed the pattern showing that banks and savings institutions do not serve minority communities. Later interviews also revealed that the reasons had less to do with demand for loans and more to do with the fact that these major lenders do not market their loan products to Realtors serving minority communities.
Benston's claim that blacks are better served by mortgage companies that provide government-insured, low down-payment mortgages doesn't hold up.
First, conventional loans with private mortgage insurance also have low down-payments; this is the type of loan most regulated lenders offer. Moreover, there are many cases in which conventionally financed mortgages are less costly to the borrower than FHA and Veterans Administration (VA) mortgages.
Second, regulated lenders are all approved FHA and VA lenders, and they may make these kinds of loans as well. If these lenders choose not to provide a type of loan that serves minorities, then they should be open to questions of discrimination.
Third, the Journal-Constitution study grouped census tracts both by race and income. The study concentrated on comparing middle-income and upper-middle-income white and black areas where there is no question that people could afford conventional as well as FHA and VA mortgages.
Thus, controlling for income and concentrating on areas where all types of mortgages were affordable for a large number of residents, the study still found some lenders favoring white areas over black areas by rates as high as 38 to 1. And for all regulated lenders combined, the rates of lending in poor white areas were actually four times higher than the rates of lending in upper-middle-income black areas.
Meanwhile, one minority bank, Citizens Trust, made virtually all of its loans in census areas too poor to be included in the main study definitions -- yet it boasted the lowest real estate loss rate of any institution its size in the nation.
As for Benston's claim that other research shows redlining does not exist, this is based on studies of only a few cities. He relies heavily on his own studies, all of which are based on a flawed research design he used in Rochester, N.Y. Oddly enough, his own Rochester study sampled only eight of that area's lenders. And rather than study communities with comparable housing stocks and incomes, Benston chose a depressed minority community in the central city and compared it with a newly growing, higher-income white suburb. He virtually ignored the fact that 59 percent of the loans in the white community were conventional while 88 percent of the loans in the minority area were FHA or VA.
He concentrated his analysis on comparing the terms for conventional, FHA and VA loans in each community. Where he found that the loans in the minority community had shorter maturities, he attributed this to a higher risk of loss in value, though he had no data to support this assumption.
Benston showed that there is no difference in lending by neighborhood, if you filter out the social, economic and housing characteristics that are associated with minority communities in Rochester. This is what he calls exploding the myth of redlining. I often use his study in my classes as a classic example of redlining patterns. His data simply beg the question of why the minority area was relegated to FHA and VA lending.
There are well over 200 studies of redlining that should have been known to Benston, including academic studies, Ph.D. dissertations, and reports by public agencies and community organizations that have found the practice to be prevalent. Yet he selects only a few studies -- mostly those by fellow economists -- for review. He even ignores a U.S. Department of Housing and Urban Development study of redlining and discrimination that included an annotated bibliography of many of these other research efforts.
While Benston's comments may provide some of Atlanta's local bankers with a moment of solace, there is no substance to his criticisms. The Journal-Constitution study advances serious issues that need to be addressed without irrelevant and unfounded diversions.
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