Minority Home Ownership
That the traditional lending process has not favored minorities is no secret. From Pulitzer-prize winning journalism in the 1980s, to other studies and research up until today, time and again, bank loan numbers have shown that whites receive more loans and at better rates than minority borrowers.
What is stunning is how little has changed over the years. Indeed, the current economic climate has served to maintain a discriminatory lending environment. Banks historically have not taken into account that minority populations tend to use nontraditional credit and banking methods. In other words, they may not save in the account of a financial institution. Minorities may keep their money in their own community more often than whites. And they may avoid the typical methods upon which good credit is rated such as credit cards, or even automobile loans.
There have been moments in time when lenders have pledged to make a difference. In the mid-1990s, after The Detroit News reported that minorities were still receiving far fewer loans than whites throughout the Metro Detroit area, banks teamed up with the newspaper to hold community forums and to make loan brokers available to minority communities.
But little really changed, especially when it came to national trends. In 2000, according to a 2002 report by The Los Angeles Times, “The Greenlining Institute’s analysis revealed, however, that of the 13 major banks that made more than 200 conventional home loans in California in 2000, the majority provided less than 3% of those loans to African Americans.”
And with the last two most recent recessions, lending institutions have pulled back credit to everyone — with minorities suffered as a result.
So, what is being done? And more importantly, what more can be done to change the discriminatory policies that keep minorities from obtaining mortgages?
First, the U.S. Justice Department has begun to act. In 2012, it announced the largest settlement with a home lender in U.S. history over fair lending. Bank of America agreed to pay $335 million to resolve allegations that its Countrywide lending arm had engaged in discriminatory practices. In that case, minorities were charged more for loans in the form of fees and interest rates, according to the Justice Department. Effectively, minorities were penalized for their historic lack of access to credit.
So, while the finding that discriminatory practices have been ongoing was bad, the fact that the federal government was pursuing justice is at least one step in the right direction.
But what more can be done? Community education is key. Lenders and advocates for minority borrowers need to hold lending events that get the word out. Brokers and mortgage processors need to receive incentives to help minorities — especially those with lower incomes and little credit history — gain access to alternative loans. There are a number of special federal loan products geared toward lower-income development areas for example. But too often, the intended recipients know littler about such products.
Minority borrowers also can still be prey to predatory lenders who offer balloon payments and low teaser rates. Better education can play a vital role in reducing the numbers of those who would end up with such loans.
And reputable lenders need to begin to change their practices when it comes to what types of credit or levels of credit history they accept as proof of good risk for a home loan. Minorities often have not had the same access to credit as whites. This fact can be accounted for in the policies of lenders. It is here that the federal government, and the grassroots community can bring pressure to bear.
The bottom line needs to be zero tolerance for lending bias.