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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Content Archived: January 20, 2009