Race, Mortgages and Statistics;The Unending Debate Over a Study of Lending Bias
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These statistics don’t lie: Black and Hispanic home buyers have a harder time getting mortgages. But why? If lenders discriminate by race, it is up to bank regulators and the Justice Department to enforce anti-bias laws. If, however, minorities are less likely to obtain mortgages mostly because they are more likely to suffer from poverty, the cure — allocating credit by skin color — is arguably worse than the disease. So thoughtful policy makers were delighted when the Federal Reserve Bank of Boston set out in 1990 to answer the question using sophisticated statistical methods. But four years after the 1992 release of the Boston Fed’s findings — which concluded that racial discrimination was still widespread in the banking industry — otherwise mild-mannered academic experts have gotten into mudslinging matches over the research’s implications. Detractors attack the study as defective in its methodology and tainted by ideological preconceptions. Supporters dismiss their concerns as overblown and wrongheaded. The publication of the full study in March in the American Economic Review, the flagship journal of the American Economic Association, seems only to have escalated the rhetoric. “I am extremely worried that economics is becoming like other social sciences — not very scientific,” said Anthony Yezer, an economist at George Washington University and a Boston Fed critic. The study has had an enormous impact on the banking industry. Both the Justice Department and the Massachusetts Attorney General began investigations of lending discrimination in the Boston area shortly after its dissemination. In December 1993, for example, the Justice Department settled a lending-discrimination case against the Shawmut National Corporation, then New England’s third-largest banking institution, after it agreed to take steps to prevent discrimination and pay at least $960,000 to black and Hispanic applicants who were denied loans. And the Clinton Administration intensified not-so-friendly efforts to persuade lenders to serve minorities. In one celebrated case, the Justice Department forced a suburban Washington bank that had few black mortgage applicants to open an office in a black neighborhood. The biggest loser in this no-win battle was Alicia Munnell, whose name appeared first among the study’s authors because she was the Boston Fed’s head of research in 1992. Last year, Ms. Munnell, then a senior Treasury official, was widely expected to be nominated to the Federal Reserve Board by President Clinton. But bankers, angered at the housing-discrimination study, lobbied heavily against her, and Mr. Clinton, his popularity then at a low ebb, last summer decided to duck the fight. Ms. Munnell was named instead to the White House’s Council of Economic Advisers. Flawed or not, the Boston Fed’s investigation had a noble purpose: leveling the mortgage playing field for minorities. Racial discrimination has been a fixture of the American housing market since Colonial times, and continues in the 1990’s despite state and Federal fair-lending laws. It takes many forms, from “redlining” — the refusal of lending institutions to make loans to residents of deteriorating neighborhoods — to charging minorities higher interest rates and fees. Newsday recently reported that its examination of almost 100,000 mortgage-loan applications on Long Island showed blacks had been rejected almost three times as often as whites, even when they had the same income. And this week, the Fleet Financial Group of Boston agreed to pay about $4 million to black and Hispanic customers to settle allegations of overcharging them for mortgage loans. Unequal treatment of minorities isn’t necessarily motived by racism; it can also reflect lesser creditworthiness or other economic disparities. Indeed, while the Boston Fed’s finding that racial discrimination is a significant problem has stiffened regulators’ resolve to police lending practices, skeptics see little in it to justify new efforts to bully banks into lending more to minorities. More : query.nytimes.com |