What We Know About Mortgage
Lending Discrimination In America

Stage 1: Advertising and Outreach

The loan approval/denial decision is what comes to mind when most people think about the mortgage lending process. And, indeed, this decision has received the most analytic attention to date. But the mortgage lending process starts considerably earlier than that, with preliminary stages filtering out some would-be mortgage applicants before they even get to a loan officer. The process actually begins with advertising and other outreach efforts--how potential mortgage applicants find out about lending institutions and loan alternatives.

To some extent, lenders use traditional means to advertise loans, such as newspapers and television, which are available on an equal basis to all who care to look. But they may also make special efforts to reach (or avoid) particular segments of the population. One outreach strategy that some lenders use is direct mail solicitations of potential customers, sometimes targeted by zip code. Who receives such solicitations--and who does not--could have a discriminatory effect. Another important facet of outreach is the placement of branch offices, for which we have legal evidence of discrimination from an investigation of the Decatur Federal Savings and Loan Association, which began in 1989 with a U.S. Justice Department investigation and ended with a consent decree signed by the two litigating parties in 1992.

The investigation found that Decatur Federal had opened 43 branches in the Atlanta metropolitan area between its founding in 1927 and the late 1980s, only one of which was in a largely black neighborhood. During the same period, it closed two offices--the one originally opened in the largely black neighborhood and another one in a neighborhood that had become largely black. Along with this history of branch closings, Decatur Federal explicitly applied different criteria for closing branches in black neighborhoods than the criteria it applied to branches in white neighborhoods. In addition, the Justice Department obtained evidence that Decatur Federal had explicitly excluded black census tracts from its market area, even though it was a large-volume lender able to compete throughout the Atlanta metropolitan area. Finally, a former Decatur Federal account executive told investigators that she was specifically instructed by the bank not to solicit loans south of interstate 20, an area that included many of Atlanta's black neighborhoods.

Legal evidence of this type, which proves discrimination in a single institution, points the way for researchers to define and devise ways of measuring the incidence of similar practices across institutions or markets. How frequently does discrimination occur at this initial stage in the mortgage lending process? What forms does it take? How does it influence minorities' access to lending institutions? Unfortunately, there are no statistical estimates, as yet, of the incidence of discrimination during the advertising and outreach stage of the mortgage lending process. This is an area where more research is clearly needed.

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