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How to fight mortgage discrimination … and win!!! African Americans join forces to end racist lending practices. Black Enterprise reviews fight-back techniques that can work for you - includes related articles on New York, New York's East Harlem and South Bronx communities and ways to investigate lensing institutions - Cover Story

Black Enterprise, July, 1993 by Carolyn M. Brown, Matthew S. Scott

REGULAR TELEVISION VIEWERS MAY THINK that the Huxtable, Roc and Fresh Prince of Bel Air households have little in common. But they do: each sitcom family lives in its own home. They have slices of the American dream, an abode to place on that mythical 40 acres, next to the mule.

Of course, TV does not always reflect reality. In fact, recent federal reports indicate that too often when African-Americans try to buy a home, the main obstacle is not the quality of their collateral, but the color of their skin.

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Peter and Dolores Green's tale typifies the problem, and its solution. The Greens have lived on Chicago's West Side for most of their lives. He is a state employee; she, a print buyer for a small publishing company. The middle class couple - with an annual income of $60,000 and net worth of more than $100,000 - could have moved to the suburbs. Instead they chose to stay and invest in their community.

For the Greens, that meant buying and remodeling the six-flat multifamily building they had called home for 34 years. Thus, in December 1989, the Greens applied for a $65,000 home mortgage loan from the Avenue Bank of Oak Park. They didn't worry. After all, they met the standard criteria to qualify for a loan: a 10% down payment, collateral and healthy incomes.

The first shock came when Avenue Bank rejected their application without explanation. The second hit when the bank did not respond to the Green's request for clarification. Undaunted, the couple filed a complaint against Avenue Bank with the Federal Reserve Board, which handed the case to the Federal Deposit Insurance Corp. (FDIC).

Less than a month later, the Greens applied for another mortgage from Chicago-based Northern Trust Co. and closed the deal within a few weeks. They had almost forgotten about Avenue Bank when the FDIC sent them a letter six months later. It said Avenue Bank was justified in its actions because the Green's building was appraised below the loan's value. And bankers don't like lending more money than they can recover by foreclosing on or selling a piece of property.

The Greens felt this made no sense, since the preliminary appraisal was outdated and Avenue Bank never conducted another one. Northern Trust's appraisal showed that the amount the Greens wanted to borrow was actually less than 75% of the property's value. The couple suspected racial bias was the real issue behind their loan denial and filed a federal lawsuit against Avenue Bank for violating the Fair Housing Act and the Equal Credit Opportunity Act. The latter requires lenders to supply a written reason for denial. "It's not our nature to accept that kind of mistreatment," says Peter. "When our rights are violated, we know there's a remedy."

Justice was on the side of the Greens. Last December, Avenue Bank ended up paying them $250,000, one of the largest individual court judgments in a lending dispute.

Still, the bank never admitted any wrongdoing. C. Paul Johnson, CEO and chairman of First Colonial BankShares, Avenue Bank's holding company, says, "The last two FDIC examinations show no evidence of racial discrimination at Avenue Bank. We are proud of our records."

Maybe so, but many banks are hiding theirs. Why? Because, their records show how many loan applicants with solid finances are rejected. Loan data alone are enough to show that race constitutes a major barrier to home ownership. Yet, now victims of credit discrimination are learning how to fight back and win. (For a step-by-step plan on combating mortgage lending discrimination, see sidebar "Fighting Back".)

In May, the Clinton Administration showed how seriously it takes the issue by authorizing federal banking authorities to use undercover agents to test if mortgage lenders are illegally discriminating against certain borrowers. Prior administrations neglected to use this tactic.

The battle rages on many fronts. Open-housing advocates are using a variety of sources and methods including reinterpreted mortgage lending data to refute claims that banks are colorblind and to teach loan officers how to create bias-free lending standards.

The numbers tell the story. In 1990 and 1991, the Federal Reserve Board's Home Mortgage Disclosure Act (HMDA) surveys revealed that black applicants were rejected twice as often as whites with identical incomes. Its data (from 9,300 banks, savings and loans and other mortgage lenders) compared the race, gender and income levels of 6.6 million applicants.

The 1991 Fed survey showed 37.6% of black conventional mortgage applicants were rejected. The Hispanic rate was 26.6%; whites, 17.3%; and Asians, 15%. Even high income blacks were rejected: 21% as opposed to 14% of similarly wealthy whites.

Figures disclosed last October bolstered claims of mortgage lending bias. A Federal Reserve Bank of Boston survey of 4,500 mortgage applicants revealed that African-Americans were denied loans more than whites even if they had similar credit records. This finding weakened the popular defense among lenders that high debt and poor credit caused the unmistakable racial disparities.

Black Enterprise, July, 1993 by Carolyn M. Brown, Matthew S. Scott

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