Blacks Lead in Rejections for Home Loans

No matter how much money blacks make, they are more likely to be rejected for home mortgage loans than whites, Asians and Hispanics in Los Angeles County, according to a Times study of lending records.

However, there is a smaller gap in loan approvals between blacks and others in Los Angeles than in other major metropolitan areas. The difference in approval rates between blacks and whites in Los Angeles is less than half the nationwide gap.

The computer-assisted review of federal records of mortgage applications processed in 1990 is the first comprehensive look at local lending activity relating to specific racial and ethnic groups. It found in Los Angeles County an average home loan approval rate of 62% for blacks, 69.4% for whites, 69.6% for Hispanics and 71.6% for Asians.

Los Angeles lenders deny that the mortgage records indicate bias against blacks, insisting that the disparities reflect economic factors. They say black applicants often have lower incomes, higher debt levels and more troubled credit histories than others.

“Everyone is very hungry for business. It doesn’t make sense to discriminate,” said Jay Janis, president of the California League of Savings Institutions.

But critics say that although the lending records do not demonstrate blatant racial bias, they illustrate the subtle discrimination that has long permeated the nation’s financial system.

“This stuff is deep--there is a pattern of historic institutionalized racism,” said Gilda Haas, organizer of Communities for Accountable Reinvestment, a Los Angeles-based coalition of neighborhood and housing groups. “Even in the most elite African-American neighborhoods in Los Angeles, homes are appraised at much lower values than elsewhere.”

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Home ownership by minorities in Los Angeles has taken on heightened importance since the riots that followed the not guilty verdicts in the Rodney G. King beating case. Some activists say economic deprivation, including the belief that many blacks are frozen out of the home market, contributed to the disturbances.

The Times study is based on Federal Reserve Board records for nearly 200,000 applications for mortgages, home improvement and refinancing loans in Los Angeles County processed in 1990, the most recent year for which data is available. Banks, savings and loan associations and mortgage companies must file the information under the Community Reinvestment Act, which says that lenders have an “affirmative obligation” to seek borrowers and depositors in all areas they serve.

The reports disclose the income and ethnic background of the applicants. The filings also include lenders’ reasons for rejecting a loan, but provide no details on an applicant’s credit history or employment record, two key elements in approving loans.

Among the findings of the study are:

* Blacks are rejected for home mortgage loans more often than members of other ethnic groups at every income level studied--from families earning $35,000 or less to those making $100,000 or more. The widest differential is in the highest income bracket, where whites were approved 68.1% of the time and blacks 58.4%.

* Mortgage standards are often dictated by government-chartered corporations that buy mortgages from banks and thrifts to be sold as securities. These standards set job history, credit and income guidelines that are often hard for the working poor to meet.

* The most common reason lenders cite for rejecting a loan application is a bad credit record. More than a quarter of blacks who are denied home loans are turned down because of credit problems. Other major reasons are high debt levels and lack of collateral.

* Asians have the highest acceptance rate for home loans of any group. Lenders attribute this to Asians’ relatively higher incomes and good credit records. They also say Asians often have extended families that help relatives make down payments.

* The picture for Hispanics is mixed. They have a higher approval rate than blacks at all income levels. Their loan applications are accepted more often than whites at incomes up to $75,000.

* Racial differences in mortgage lending are smaller in Los Angeles than in other major urban areas. The difference between approval rates for whites and blacks is slightly more than 7 percentage points in Los Angeles; nationwide, the gap is nearly 17 points. Lenders attribute this to Los Angeles’ diversity and highly competitive loan market.

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The lenders, including those who are most active in providing mortgages to the black community, insist that basic economics, not racism, explains the higher loan rejection rate for blacks. They say that blacks often have lower incomes, more credit blemishes, spotty job resumes and fewer financial resources--factors that lenders weigh heavily in deciding to grant a loan.

Tough credit and collateral standards pose significant obstacles to obtaining loans. Lenders say that loan standards for the secondary mortgage market often demand that applicants have at least two years at their current jobs, no past credit problems and prospective mortgage payments no higher than a third of their gross income.

Such standards are required by the Federal National Mortgage Assn. (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac), institutions that are the main buyers of mortgages in the secondary market. Banks and thrifts frequently sell mortgages to Fannie Mae and Freddie Mac, using the funds to originate new home loans.

Fannie Mae spokesman David Jeffers insisted that the agency is willing to negotiate mortgage standards with individual lenders. He said Congress is preparing legislation that would require 30% of all loans it buys to go to people with low and moderate incomes.

But banks and thrifts still feel constrained to follow strict rules.

“The system for evaluating mortgage applications may be on its face colorblind but has the effect of discriminating,” said Warren W. Traiger, a lawyer and adviser to banks on the federal laws governing discrimination and community reinvestment. “The standards are not flexible enough to accommodate a person who might be a good credit risk but does not fit the official criteria.”

Charlotte Bullock might be such a person. She wanted to withdraw about $20,000 in equity on her home on 45th Street in South-Central Los Angeles to pay for some improvements, including a new roof and paint job.

Bullock, a single mother, makes $33,000 a year as a city clerk-typist, supplements her income by renting out spare rooms and has no trouble meeting her $533-a-month payment. But she was rejected because of a stain on her credit record--delayed payments on a college loan for her daughter and some other bills in 1989 after a younger daughter was hospitalized.

“I paid them all off, but it still shows up as late,” she said, her voice echoing the frustration. “Nobody got a judgment against me and I didn’t file for bankruptcy.”

Bullock believes lenders would have been much more understanding if she was white.

For Sylvia Woods, a retired Los Angeles County welfare fraud investigator, the problem was getting a lender to give her a new mortgage on her Chino Hills home. When rates dropped to the 8% range last year, Woods, who is black, wanted to substitute a fixed-rate loan for the adjustable-rate mortgage on her property.

Her home had appreciated to the point where nearly half of its $190,000 appraised value was equity. And she had a monthly income of $3,500, including a pension and money earned as a bridal consultant. But a credit report showed that Woods had been late in paying off an $800 charge account bill. As a result, she was denied the fixed-rate mortgage and had to refinance with another adjustable loan at a higher rate than the fixed-rate loan.

Many “people are denied access to homes due to credit infractions that happened three, four or five years ago even though today they are good upstanding citizens and have job stability,” said Shannon Thurmond, executive vice president and co-owner of Wellington Funding, an El Segundo mortgage broker.

“Good people are being denied access to homes in Los Angeles who shouldn’t be,” said Thurmond, whose firm arranges mortgages in South-Central Los Angeles, Inglewood, Los Angeles’ Eastside and other areas with large minority populations.

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Another factor that makes it difficult to buy a home in these areas is a tightening of private mortgage insurance, which lenders require to protect against losses when a prospective buyer does not have enough money for a conventional down payment equal to 20% of the purchase price. Accumulating a down payment is difficult for many buyers, so they arrange loans in which they put down 10% or less. But getting those loans hinges on the ability to get mortgage insurance from insurers who have grown wary because of the soft economy and real estate market.

Richard H. Deihl, chairman of Home Savings of America, said blacks face a host of difficulties in qualifying for a loan. He says they often have more problems on their credit reports than others and their employment history may be more uneven.

“Blacks are first laid off and last rehired, and they are going to have more of a problem in employment history,” Deihl said. In 1990, Deihl’s firm ranked second in Los Angeles County in making home loans to blacks, approving 333 mortgage loans.

He said blacks often lack the resources--individually or in families--for a down payment. Deihl’s four children own houses: “I helped everyone with the down payment or as a co-signer. If they did not have me to help, they all would have been turned down.”

U.S. Census figures for 1990 show that the median household income--half make more and half earn less--in Los Angeles County was $39,552 for Asians, $39,106 for whites, $27,803 for Hispanics and $26,027 for blacks.

High prices in Los Angeles, far above most of the nation, make homeownership an unreachable dream for many low- and moderate-income people, especially blacks and Hispanics. In fact, only 35.1% of Hispanics and 36.5% of blacks owned their homes in Los Angeles, compared with 53.7% of whites and 51.3% of Asians, according to the 1990 census. Nationally, about 67% of whites and 43% of blacks own their homes.

But even blacks with enough income to buy a house find the process difficult. Blacks were more often rejected than whites and Asians for mortgages, despite applying for significantly smaller loans in every income category. For example, among unsuccessful black applicants with household incomes of $75,000 to $100,000, the average loan request was $163,000. The average loan granted to whites with similar incomes was $185,000.

For blacks who have enough income to afford a house, credit history often becomes the stumbling block. Bank of America, the biggest lender in the state and the nation’s second-largest bank, approved 42.4% of loan applications from blacks, while 62.5% of white applicants got their mortgage money. But the San Francisco-based bank says its record does not reflect a pattern of discrimination. Donald Mullane, the bank’s executive vice president, said Bank of America performed an analysis of its loan rejections and found that most blacks were rejected because of derogatory credit reports.

“It is a credit management issue,” Mullane said. “It is not a racist issue (although) it sounds like one.”

In fact, Los Angeles lenders cite credit history as the most common reason for turning down a black applicant’s loan. Credit problems were mentioned in 26.9% of the loan denials, compared with 17.9% for whites.

Wayne Pharr, owner of the Century 21 Citizens real estate franchise at Pico and La Brea, said lenders should be more flexible regarding credit requirements.

“You have to look at the dynamics of the whole community as to why our credit is bad,” he said. “You come from a community that is depressed and where it’s hard to find work. And we have to have the same credit as everybody else in order to get a loan. Your credit history follows you around.

“If you had a problem because of a layoff, then got a stable job and wanted to buy a house, all that (happened) in your past would stand against you,” Pharr said. “A person’s character should come into play a little bit.”

Thurmond, however, is convinced that lenders are biased against black inner-city neighborhoods. The true reasons for denial are not cited, he said.

“I honestly don’t believe there’s a great deal of redlining as it relates to individuals, but I do believe there is redlining involving location,” Thurmond said. “They check the graffiti in the neighborhood and the bars on windows. They look at the Polaroids and say: ‘This must be a bad neighborhood.’ ”

But John Young, a black mortgage broker who arranges loans in South-Central Los Angeles, doubts that there is classic redlining of the community, in which an entire geographic region is purposely ignored by financial institutions. “It’s not that they take an area and say: ‘We’re going to exclude you guys,’ ” he said. “What happens in the inner city is that you find more credit problems. You just find more derogatory credit.”

Asians in Los Angeles are the least likely group to be denied a loan because of a bad credit record. Only 12.9% of loan rejections were related to credit; lack of collateral was a bigger problem.

“Credit history hardly ever comes up as a problem for Asians,” said Glen Canner, senior economist with the Federal Reserve. “They haven’t acquired a lot of debt.”

That is the major reason Asians have the highest approval rates for home loans of all ethnic groups. Among Los Angeles residents earning $75,001 to $100,000, the approval rate was 73.1% for Asians, 69.1% for Hispanics, 70.5% for whites and 63.9% for blacks.

Some Asians may put down as much as 30% to 60% of the purchase price, said Andrew C. Yip, president and chief executive of Omni Bank in Monterey Park. For newly arrived immigrants with little or no credit and no job history, a big down payment makes it easier to get the loan.

Younger buyers often get financial aid from their families, said Yip, whose bank is owned primarily by a family from Taiwan and operates in the west San Gabriel Valley, which has experienced a huge influx of immigrants from Taiwan and Hong Kong.

“It’s not uncommon to find a son or daughter just out of college trying to get established who can’t afford the down payment,” he said. “It is very, very common for parents, brothers and sisters to help.”

The high approval rate for Asians in Los Angeles masks huge economic differences among different groups, said Lisa L. Sugino, project manager for the Little Tokyo Service Center housing program.

“You can’t compare a Hmong (Laotian refugee) person with a third-generation Japanese person who works as an engineer for Rockwell or as a doctor,” she said.

Like the Asians, the burgeoning Hispanic population of Los Angeles often uses help across generational and family lines to enter the housing market. Despite an economic profile that is similar to that of blacks, Hispanics fare better when seeking home loans. Lenders say that despite their relatively low incomes, Hispanics are successful because families or friends become economic allies in buying a home. This provides a power that overcomes the income statistics.

Joaquin Rodas, a mortgage loan consultant for 10 years and a native of El Salvador, says that it is common for two families--who are usually related--to pool resources for a down payment.

“The Latino population believes in co-signers,” said Rodas, who works for Great Western Bank. “They get compadres or families together and do anything they have to do to qualify for that loan. Latinos are more persistent about getting the house.”

However, Hispanics face some of the same obstacles as blacks, overcoming rigid lending standards, lack of resources and a bias against frequent job changes.

“They might deny an auto mechanic who has changed jobs a lot even though he has never been unemployed and did it to increase his income,” said Selwyn Whitehead, head of the Economic Empowerment Foundation, based in Oakland.

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Despite such problems, minorities fare better in Los Angeles than elsewhere in getting mortgage loans. Although the reasons for this are not completely clear, the ethnic diversity of Los Angeles may help explain why. In the county, 10.8% of residents are Asian and 37.8% are of Hispanic origin, among the highest figures of any metropolitan area in the country.

Blacks make up 11.2% of the county’s population, far less than in many other U.S. urban centers. And only 7% of Los Angeles’ black population lives in all-black neighborhoods, compared to 37% nationally, according to a study by Margery Austin Turner of the Urban Institute. There has been a huge influx of Hispanics into formerly all-black neighborhoods, and blacks have moved in growing numbers to the largely white San Fernando Valley.

Thus, it is not surprising to see stronger evidence of redlining--rejecting whole communities for home loans on the basis of race--in other areas where racial segregation is more deeply rooted. Cities with distinctive all-black residential neighborhoods have marked gaps in mortgage approval rates between blacks and whites--Atlanta (22.6 percentage points), New York (15.3), Dallas (15.9), Washington (10.7), Detroit (15.2), Houston (20.7) and St. Louis (20).

In addition, industry officials note that Los Angeles is one of the nation’s most competitive mortgage markets, with large savings and loan associations, banks and mortgage companies struggling to find borrowers.

“We’re all fighting for loans,” said Deihl of Home Savings.

LENDING IN LOS ANGELES

MORTGAGE LOAN CLOSEUP

Blacks, who constitute 11.2% of Los Angeles County’s population, submitted only 4.8% of home mortgage loan applications. The black applicants had less chance of winning approval than others seeking loans, a Times analysis of lending records shows. The differential in loan approvals between blacks and whites in Los Angeles is 7.4 percentage points, compared to a 16.8 percentage point gap nationwide.

Los Angeles Asian Black Hispanic White Applications* 13,230 4,057 22,246 43,255 % of applicants 15.7% 4.8% 26.4% 51.4% Loan Approved 71.6% 62.0% 69.6% 69.4% Loan Denied 12.7% 19.1% 15.0% 12.2% Withdrawn/closed 15.7% 18.9% 15.4% 18.4%

* Does not include 1,376 applications filed by other groups. Totals are based on requests for loans not exceeding five times the applicant’s annual income. Loans are for one- to four-unit dwellings.

National Asian Black Hispanic White Applications** 92,113 126,425 135,137 1,685,860 % of applicants 4.5% 6.1% 6.5% 81.6% Loan Approved 75.8% 63.1% 70.2% 79.9% Loan Denied 11.6% 25.9% 18.1% 11.0% Withdrawn/closed 12.6% 11.0% 11.7% 9.2%

** Does not show 25,413 applications filed by other groups. Totals are based on requests for loans not exceeding five times the applicant’s annual income. Loans are one- to four-unit dwellings.

Source: Times analysis of 1990 data on 2,064,948 mortgage applications reported by lending institutions to the Federal Reserve.

LOAN APPROVAL RATES

Blacks in Los Angeles County are more likely to be rejected for mortgage, home refinancing and improvement loans that whites and others, according to a Times study of lending records. The gap in loan approvals between blacks and others in Los Angeles is substantially smaller than nationwide.

Percentage of home mortgage loan applications approved

Income Asian Black Hispanic White $35,000 or less 65.2% 53.6% 62.4% 61.2% $35,001 to $50,000 71.5 63.4 71.3 70.1 $50,001 to $75,000 74.8 65.0 73.4 72.2 $75,001 to $100,000 73.1 63.9 69.1 70.5 More than $100,000 68.8 58.4 61.7 68.1 L.A. Total 71.6 62.0 69.6 69.4 U.S. Total 75.8 63.1 70.2 79.9

Percentage of home refinance loan applications approved

Income Asian Black Hispanic White $35,000 or less 63.2% 64.3% 62.0% 67.3% $35,001 to $50,000 66.4 65.2 66.3 70.4 $50,001 to $75,000 69.9 66.7 65.8 72.0 $75,001 to $100,000 68.7 66.5 65.1 71.2 More than $100,000 60.6 59.4 59.4 65.8 L.A. Total 65.3 64.7 64.4 68.8 U.S. Total 68.2 61.8 65.0 75.8

Percentage of home Improvement loan applications approved

Income Asian Black Hispanic White $35,000 or less 50.0% 55.9% 51.8% 62.1% $35,001 to $50,000 60.6 64.3 60.4 64.5 $50,001 to $75,000 65.2 62.8 63.8 69.3 $75,001 to $100,000 60.1 59.3 64.7 69.3 More than $100,000 53.2 66.4 55.5 64.8 L.A. Total 59.1 61.2 59.3 66.5 U.S. Total 66.9 57.3 60.9 78.7

Note: Figures based on applications for loans not exceeding five times the applicant’s annual household income. Loans are for one- to four-unit dwellings.

Source: Times analysis of 1990 data reported by lending institutions to the Federal Reserve.

HOUSING AND DEMOGRAPHICS

Blacks in Los Angeles County have the lowest household income of any group, which lenders say is a major factor in the low level of mortgage loan approvals.

White Black Asian* Hispanic** Population 5,035,103 992,974 954,485 3,351,242 Median household $39,106 $26,027 $39,552 $27,803 income*** Occupied housing 1,941,206 352,679 276,886 784,171 units % home ownership 53.7% 36.5% 51.3% 35.1%

* Includes Pacific Islanders

** Includes whites and blacks of Hispanic origin.

*** Income level at which half the households earn more and half earn less.

Source: 1990 Census. Census data programming by Maureen Lyons, Times statistical analyst.

COMPARING METRO AREAS

Blacks are approved for mortgage loans less often than other groups in major urban areas across the country. The problem is most acute in areas with large, concentrated black populations. Here are the percentages of home mortgage loan applications approved in 1990:

Metro area Asian Black Hispanic White Atlanta 78.9% 59.1% 80.1% 81.7% Chicago 81.4% 69.5% 83.7% 85.9% Dallas 84.2% 65.8% 73.5% 81.7% Denver 80.3% 63.0% 72.7% 82.8% Detroit 84.9% 69.9% 79.8% 85.1% Houston 75.6% 56.3% 64.5% 77.0% Los Angeles* 71.6% 62.0% 69.6% 69.4% New York 73.0% 60.9% 64.4% 76.2% Orange Co. 69.4% 64.5% 71.5% 72.8% Philadelphia 82.4% 68.2% 73.6% 85.9% St. Louis 79.7% 60.1% 79.5% 80.1% San Francisco 74.4% 63.6% 71.9% 72.8% Washington 79.4% 71.2% 80.1% 81.9% U.S. average 75.8% 63.1% 70.2% 79.9%

* Figures are for Los Angeles County.

Source: Times analysis of 1990 data reported by lending institutions to the Federal Reserve.

LENDING GAP

The differential between whites and other groups in the percentage of home mortgage loan applications approved is shown below. The differential is expressed in percentage points. For example, in Los Angeles County, the approval rate for whites was 69.4%; for blacks, 62%--a differential of 7.4 percentage points.

Metro area Asian Black Hispanic Atlanta -2.8 -22.6 -1.6 Chicago -4.5 -16.4 -2.2 Dallas +2.5 -15.9 -8.2 Denver -2.5 -19.8 -10.1 Detroit -0.2 -15.2 -5.3 Houston -1.4 -20.7 -12.5 Los Angeles* +2.2 -7.4 +0.2 New York -3.2 -15.3 -11.8 Orange Co. -3.7 -8.3 -1.3 Philadelphia -3.5 -17.7 -12.3 St. Louis -0.4 -20.0 -0.6 San Francisco +1.6 -9.2 -0.9 Washington -2.5 -10.7 -1.8 U.S. average -4.1 -16.8 -9.7

Source: Times analysis of 1990 data reported by lending institutions to the Federal Reserve

REJECTIONS REASONS

Los Angeles lending institutions most frequently cited bad credit history as the reason for rejection of mortgage applications. For blacks, more than a quarter of all loan rejections are tied to credit problems.

Asian Black Hispanic White Debt/Income Ratio 12.4% 13.3% 14.4% 15.5% Employment History 2.7% 0.9% 1.5% 1.8% Insufficient Collateral 13.1% 11.1% 18.7% 13.7% Insufficient Cash 1.8% 1.9% 2.2% 2.7% Unverifiable Information 6.2% 5.3% 6.6% 5.7% Incomplete Application 2.1% 1.3% 0.9% 2.1% Mortgage Insurance Denied 1.2% 0.1% 1.2% 0.8% Other 30.3% 22.4% 19.7% 21.1% Credit History 12.9% 26.9% 19.9% 17.9%

Note: More than one reason may be cited for rejection of a loan application.

Source: Times analysis of 1990 data reported by lending institutions to the Federal Reserve.

How the Study Was Done

The Times reviewed more than 3.4 million applications for home purchase, home improvement and refinancing loans reported in 1990 to the Federal Reserve Board by more than 8,400 U.S. lending institutions. Although the Fed tallied 6.4 million applications, the Times study was limited to applications with complete information on an applicant’s ethnic group and income and the amount of the loan. Excluded were incomplete forms as well as applications for loans totaling more than five times a person’s annual income, loans on dwellings with more than four units and loans resold by lenders.

In Los Angeles County, 190,894 loan applications were analyzed, including 84,165 for home purchases, 19,854 for home improvements and 86,875 for refinancing.

Reasons for rejecting loan applications were reported for all lenders except the Bank of America, which failed to report this information in 1990.

The Times’ preferred style is Latino rather than Hispanic. However, this study of mortgage lending uses the definitions and terminology employed by the Federal Reserve in collecting information from banks.

Because of different collection methods it is difficult to compare information about Hispanics gathered by the Fed and the census. The Fed report for banks requires loan applicants to choose from these categories: white, Hispanic, black and Asian. The Census Bureau, in contrast, first asks people to designate themselves as white, black, Asian or Pacific Islander, American Indian, or other. A second question asks if the person is of Hispanic origin. Therefore, the census data for Hispanics will include some whites and some blacks who also list themselves as Hispanic.