The Color of Money
ACORN Report Charges Allfirst With Racial Discrimination in Lending Practices
You're middle or low income and you've finally scraped together enough cash to put a modest down payment on your first home.
You need a mortgage loan.
You go to your local bank branch where you've always had your checking account, your savings, your personal loans, your CDs.
You meet with a loan officer who tells you he's sorry, but he can't help you get your mortgage. Instead, he gives you a card with an 800 number to call where you're directed to a brokerage that offers you an inferior product--perhaps a home loan at a subprime rate--or a government-backed loan.
It happened to Roland Bell, a board member of the Maryland chapter of the Association of Community Organizations for Reform Now (ACORN), when he tried to buy his house. And it's happened to dozens of other black and Latino men and women in Baltimore City. Especially, Bell and his colleagues at ACORN say, when they sought mortgages from Allfirst Bank, one of the city's largest commercial banks. Of 132 conventional mortgage loans made in 2001, the bank reported to federal regulators that only three of those loans were made to African-American borrowers. At least 61 were made to whites.
"They just ain't lending to us African-Americans in the city of Baltimore," Bells says, as he takes a seat in ACORN's Park Avenue office. "It just ain't right."
On Oct. 1, ACORN released a report on discriminatory mortgage-lending practices across the country. The report, titled The Great Divide: Home Purchase Mortgage Lending Nationally and in 68 Metropolitan Areas, revealed that in 2001 African-Americans were 2.31 times as likely as whites to be turned down for a mortgage. Latinos were 1.53 times as likely to be turned down as whites. Data analyzed by ACORN (obtained from the Federal Financial Institutions Examination Council, which is required to release it under the Home Mortgage Disclosure Act) indicated that in Baltimore one in four African-Americans who applied for a conventional mortgage loan in 2001 was denied, and one in five Latino applicants was denied. White applicants fared much better: Only one in 12 was denied conventional mortgage loans in 2001.
In the Baltimore metropolitan region, even upper-income African-Americans had more problems obtaining mortgage loans: The data ACORN collected indicates that if an African-American earning 100 percent to 120 percent of the median income applies for a mortgage loan in this area, that family is 3.6 times more likely to be rejected by a bank than a white family with the same income.
Even more disturbing, ACORN national researcher Valerie Coffin says, is that, rather than decreasing, rejection rates for minority loan applicants are increasing over time. In 2000, for example, Home Mortgage Disclosure Act information indicated that African-Americans were only 2.07 times as likely as whites to be turned down by lenders; in 1996, they were only 2.02 times as likely to be turned down.
"What this data shows is that not only are African-Americans and Latinos being rejected more often than whites, but the gap is growing as years go by," Coffin says.
As a result, the ACORN report says, low-income and minority homebuyers are becoming increasingly reliant on "subprime" loans to finance their home purchases--loans that offer higher interest rates, more fees, and fewer consumer-friendly terms. As a result, subprime loans, often associated with predatory lending practices, put many minority homeowners at a greater risk of foreclosure.
In January 2001, Baltimore-based Allfirst Bank received an overall "satisfactory" rating in its most recent evaluation from the Federal Reserve under the Community Reinvestment Act, a regulatory measure enacted by Congress in 1977 to ensure that financial institutions offer equal access to lending and services. Still, ACORN says the bank's record of lending to minorities is weak. "Allfirst is our poster child of what's wrong with the lending that's happening in Baltimore," Coffin says.
Even though Allfirst controls more than 18 percent of all deposits in the city, ACORN says that the bank fails to reinvest here. The bank is currently planning to merge with Buffalo, N.Y.-based M&T Bank, and ACORN leaders plan to submit negative testimony to the Federal Reserve Board on the merger if the banks' leaders do not agree to rectify the lending disparities documented in the report.
"[Three] loans to African-Americans? That's not community reinvestment," says Mitch Klein, head organizer of ACORN. "That's pitiful."
Phil Hosmer, vice president for corporate communications for Allfirst, says he has not seen ACORN's report, but he says the bank's record speaks for itself. "We're pleased with our record and with our performance under the [Community Reinvestment Act] guidelines," he says. "We received a satisfactory CRA rating."
When asked to comment on federal data that indicates that only three loans were made to African-Americans by Allfirst in 2001, Hosmer says, "I don't know if that's the case or not." He says that the bank does not request racial data from loan customers, and that information is not included in "automated loans-processing systems, and it's not included in the underwriting system." In essence, he contends, the system is colorblind.
The government does monitor racial data, however, though Coffin says they don't do enough to hold banks accountable for their lending records. "Regulators have really loosened their criticism of lenders and banks under the CRA," she says. "Now hardly any bank will receive anything other than a satisfactory rating. It's ridiculous."
One tactic some banks take to meet Community Reinvestment Act requirements, Coffin says, is to purchase subprime loans from smaller lenders. Most subprime loans are made to low-income individuals and minorities, so a bank may present them as part of their community-reinvestment package.
"We know some subprime lenders will actually advertise themselves to banks, saying, 'Hey, we can boost your CRA rating by letting you buy loans we made to poor people and minorities,'" Coffin says. The high-interest loans benefit commercial banks' Community Reinvestment Act rating as well as their bottom line.
When asked about subprime lending, Hosmer refers to Allfirst's Community Reinvestment Act rating: "You have access to a 40-page [Federal Reserve CRA] document, and that's the government's record on this matter," Hosmer says. "The government has issued a report on this matter, and that's what we stand by."
But Hosmer adds that it is "unfair" of ACORN to tie subprime and predatory lending to the disparity issue: "Predatory lending is when banks manipulate interest rates," he says. "They're throwing in predatory lending with general lending and that's just wrong."
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