The study by the Federal Reserve
Bank of Boston incorporated data submitted voluntarily by about 130
Boston lenders. The data came from application and loan files for
1,013 minority and 3,123 nonminority applicants and included information
from loan applications, credit reports, and lenders’ worksheets. The
statistical analysis performed for the study took into account an
applicant’s debt ratios, wealth, credit history, and income stability.
The analysis also included loan-to-value ratios, information about
private mortgage insurance sought or approved, the neighborhood characteristics
of the property being financed, and other factors.
The study found that economic differences account
for a substantial part of the disparities in the HMDA data, but that
they do not explain those differences entirely. Minority applicants
in the study had, on average, lower income, fewer liquid assets, more
late and delinquent credit accounts, and higher debt-to-income ratios
than white applicants. However, even after controlling for differences
in relevant economic and financial variables, black and Hispanic mortgage
applicants were more likely to be turned down than similarly situated
whites. Specifically, on a statistical basis, minority applicants
with credit-related characteristics identical to those of an average
white applicant would experience a 17 percent denial rate, as compared
with the white denial rate of 11 percent.
The study also found that the vast majority of minority
applicants obtained loans, and that loan-approval rates for well-qualified
and clearly unqualified applicants of all races were essentially what
would be expected in a nondiscriminatory system. Disparities appeared
to be most common among applicants who have some imperfections or
flaws in credit qualifications. Many such applicants can—and do—qualify
for a loan if a lender acts diligently, creatively, and flexibly on
their behalf. However, the study’s results suggest that applicants
of different races do not all benefit equally from such discretionary
efforts in the lending process. This tentative explanation of the
study’s findings is also consistent with investigation-based allegations
recently reported by the U.S. Department of Justice.
