The Home Mortgage Disclosure Act (HMDA) of 1975 made it easier to address the issue of discrimination by requiring lending institutions to document mortgage lending patterns. The concern, at the time, was that banks were not providing adequate credit in certain inner-city neighborhoods. Data was now required which show the geographic distribution of home mortgages. With subsequent revisions to the Act, data on number of applications received and loans made by census tract, income levels, race and gender are now obtainable.
One of the most touted studies, which relied heavily on HMDA data, is a 1990 study by the Federal Reserve Bank of Boston that documented differences in lending patterns for whites and non whites. The research revealed a ratio of nearly three rejections for African Americans to one for white applicants, based on the number of applications received. Questions persisted regarding reasons for the disparate treatment. To this end, HMDA data from the 1990 study were augmented with information from a sample of African American (and Hispanic) applicants who had applied for conventional home purchase loans in the Boston area and from a control sample of white applicants. The additional data were requested from the 131 financial institutions that had received twenty-five or more mortgage applications, out of 352 lenders that had filed 1990 HMDA data for the Boston metropolitan area. Lenders assembled data for applicants identified by the Federal Reserve Bank and reported thirty-eight additional pieces of information about each, pertaining to financial characteristics, employment experience and credit history. (Schieber, 1992)
The study brought to light substantial differences in the financial and other economic circumstances of typical white applicants and those of minority applicants, and in the types of properties and characteristics of loans they sought. For instance, minority applicants tended to have weaker credit histories and lower net worth than white applicants. Further, minority applicants were much more likely seeking to buy multiple-family, rather than single-family, properties. (Schieber, 1992)
What is most revealing in the Boston supplemental study, however, is that while most applicants had some flaw in their credit histories, the white applicants were more often than not granted the loan anyway. After controlling for significant economic factors affecting mortgage-lending decisions, there remained unexplained differences in loan approval rates for African Americans and whites among the surveyed mortgage lenders as a group.
Since these and other studies have been completed, numerous initiatives were undertaken in an attempt to "level the playing field." For example, federal regulators expanded data analyses in order to aid in strengthening enforcement of fair lending and of compliance with the Community Reinvestment Act (CRA). Lenders instituted internal systems to grant second reviews to minorities whose applications were denied. In addition, banks and mortgage companies developed training programs for lenders to ensure fair treatment of borrowers as well as offer credit counseling advice to minorities who may need it. Failure to grant loans drains the economic life from inner-city and minority populated communities and it is these communities that desperately need an economic shot in the arm.
The public policy debate continues to center around ensuring equal access to mortgage credit. While the Clinton Administration championed the enforcement of fair lending initiatives and sought to have fair lending issues addressed, the conservative Congress fought to limit potential positive effects of fair lending rules and introduced bills in the House and Senate that would exempt nearly 88% of the nation's banks from CRA. (Taliefero, et al, 1993; Seiberg, 1995; Loeb, Cohen and Johnson, 1995).
Since banks and savings and loans receive privileges (e. …