Federal regulatory agencies deserve a long and hearty round of applause for their decision to launch a long overdue investigation into possible cases of racial discrimination in mortgage lending.
The Federal Reserve and U.S. Department of Housing and Urban Development are among the agencies involved in the effort, which comes on the heels of the Fed’s analysis of 2004 data collected from lenders pursuant to federal law. The Fed’s analysis found that such factors as loan price, property location and income level couldn’t fully explain certain patterns of higher mortgage interest rates being paid by African American and Hispanic borrowers. Numerous other studies over the years also have found unexplained disparities in the types of loans originated to minority borrowers.
Whether individual, corporate or systemic racial discrimination accounts for the disparities in the data isn’t known, but the possibility is well worth a closer look to find out. If further investigation demonstrates that discrimination isn’t to blame, the identification of whatever other factors contribute to the disparities could suggest ways to create better opportunities for minority borrowers and improve data collection to track those factors.
If discrimination exists, prosecutors should throw the proverbial law book at the perpetrators. Discrimination in real estate lending isn’t a victimless crime. Rather it is a form of theft from borrowers who are forced to pay higher fees and more interest on their home loans than they otherwise would have to pay simply because of their racial makeup. The thieves would be the lenders and brokers who pocket those additional fees and interest payments over the lifetime of these loans. And the amounts aren’t merely nominal.
Investigators face a difficult challenge since racially discriminatory lending could be hidden within loan decisions purported to be made on the basis of other non-racial factors. Yet straw-man arguments shouldn’t dissuade regulators from deeper digging into the data and asking some tough questions to determine whether discrimination is behind those decisions and whether it may be systemic in lending practices.
Lenders under the microscope also might challenge the reliability of the data or the methodologies of the analysis. While the data might not prove discrimination without further investigation, blaming these studies for their findings shouldn’t be an acceptable way to dodge the entire issue since so many reports have come to the same conclusion.
The federal investigation is not a mere witch hunt. Regulators have targeted the 2 percent of lenders subject to the reporting law that appeared to report “relatively large pricing differences by race, ethnicity or sex.” That targeting is as it should be. If those lenders are able to explain why their data is so far out of sync with their competitors’ standards, no more questions would need to be asked — and perhaps no more studies would need to be undertaken.
A high-profile conviction in a mortgage discrimination case would be a welcome outcome of the investigation because it would bring some perpetrators to justice and make fear of prosecution more than a hollow threat. It would encourage mortgage lenders and brokers in all neighborhoods to review their practices and think more carefully about the implications of those practices for minority borrowers. It also would send a signal to victims and witnesses of these crimes that allegations of illegal discrimination would be taken seriously and result in action on the part of regulators and prosecutors.
If no such case can be brought, answers to a few very pertinent and persistent questions still would be a substantial benefit lenders and borrowers alike: Is racial discrimination systemic in mortgage lending? If so, where and why? And if not, why do studies of the lender-reported data repeatedly find otherwise?
Marcie Geffner is a real estate reporter in Los Angeles.
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