December 2, 1991 MORTGAGE MOONSHINE
Confess! According to Barney Frank, the irredeemably liberal Massachusetts Democrat — with a solid 94% rating from Americans for Democratic Action — that is what the bankers of America must now do. They should penitently acknowledge they done wrong, and not react to the news "in a wholly defensive, negative way."
As to what the bankers should confess to, opinions vary, but politicians with high ADA ratings seem unanimous in believing that their mortgage-lending departments must now plead guilty to racial discrimination. Evidence of their bias is said to lie in the recent Federal Reserve study showing that mortgage applications are disproportionately turned down when the applicant is black or Hispanic. Even when you control for income level, these groups did far worse than whites applying for mortgages. In the highest income category examined — one in which the applicants had incomes at least 20% above the average for their metropolitan statistical area — 21.4% of black applications were turned down, vs. 15.8% for Hispanics and only 8.5% for whites.
Among the Congresspersons screeching loudest about these data have been Bay Stater Joseph P. Kennedy II (ADA rating: 89%) and Henry B. Gonzalez of Texas (100%). "It matters not whether the discrimination is intentional," says Gonzalez, chairman of the House Banking Committee. "Discrimination by ignorance is just as . . . destructive as discrimination by design." Gonzalez and Kennedy introduced the legislation requiring the Fed to compile mortgage-rejection data with breakouts for race and income, which is possibly why they think the figures are so compelling.
The babble over the Fed study has been bizarre on two counts. First, you need a lot more than income data to establish whether mortgage applicants are creditworthy. At a minimum, you would also want data on their credit histories, employment records, and savings. (A 1983 survey by the Fed showed that on average white families have four times the assets of black families.) One hilarious undercurrent at the marathon October 21 press conference announcing the findings was the effort of Federal Reserve Governor John LaWare and others onstage to (a) keep reminding the assembled media folk of these critical omissions while (b) still earnestly trying to represent that the final report was somehow or other quite useful.
Weirder still has been the deafening silence in the media and Congress about another matter: the data on Asian-Americans, whose mortgage applications were also studied by the Fed. It turns out that rejection rates for Asian-Americans were lower than those for whites. Taking together applications at all income levels for mortgages to buy homes, we find that whites had rejection rates of 13.8%, Asian-Americans of 12.9%.
How does that fit into a discrimination-based explanation of the different rejection rates? We called Gonzalez's office demanding (politely) an answer to this question. His office said he is still studying the data. The young lady from Kennedy's office got back to us with a formal statement incorporating the thought that "Asians are repeatedly rejected for mortgage loans at higher rates than whites." We noted that the data said otherwise, at which point she began yalking about certain metropolitan areas where Asians did worse than whites. We were on the verge of pointing out that this implied the existence of still more areas in which they did better than whites but sensed that she might not be able to sell this thought to her boss, as it could only serve to depress him, not to mention his ADA rating.