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The cost of bank bias - discrimination against African Americans applying for mortgages
African-Americans receive less credit. Literally. Recent federal data reveal blacks of virtually all income groups get less credit--including home mortgages, consumer credit and business loans--than any other American group. That's not because they are in a higher risk category. To a large extent, blacks get less credit because of discrimination.
The limited availability of home mortgage credit for blacks is reflected in their rejection rates. In 1990, data collected under the Home Mortgage Disclosure Act (HMDA) showed that nationally 33.9% of conventional mortgage applications filed by blacks with banks and savings and loan associations were denied. The rate for whites was 14.4%. For Hispanics, 21.4%, and for Asians, 12.9%. The rejection rates for federal government-backed mortgages were similar: blacks, 26.3%; whites, 12.1%; Hispanics, 18.4%; and Asians, 12.8%.
A borrower's ability to obtain a home mortgage loan depends theoretically on his or her income, existing debt, and the applicant's credit history. The HMDA study shows that loan applications by blacks have been disproportionately rejected.
For applicants whose annual incomes were less than 80% of the median income in a given metropolitan statistical area (MSA), the rejection rates for conventional mortgages were: blacks, 40.1%; Hispanics, 31.1%; whites, 23.1%, and Asians, 17.2%. When applicants' incomes were in the 100% to 120% range of the MSA median, rejection rates were: blacks, 26.3%; Hispanics, 19.1%; whites, 11.2%; and Asians, 12.6%. Surprisingly, even when blacks' incomes were well above average (more than 120% of the MSA median), they still had the highest rejection rate: blacks, 21.4%; Hispanics, 15.8%; whites, 8.5%; and Asians, 11.2%.
Evidence based on day-to-day lending points to racial and ethnic bias. A market research firm conducted "blind tester" surveys in which...