Are home loans at risk? New study disputes mortgage discrimination.

A new study may provide ammunition for a GOP-led crusade to weaken the Community Reinvestment Act, which penalizes banks for discriminatory lending practices. The report, partly sponsored by the Federal Reserve Board, concludes that mortgage lenders do not discriminate against blacks.

The Canner Study is faulty, critics contend, because it doesn't take income levels into consideration. Many African Americans are concerned that a hostile House Financial Institutions and Consumers Subcommittee will use the report to lessen support for the CRA.

According to the study, if minorities are really being discriminated against, only highly qualified minority loan applicants would ever be approved. And, therefore, credit-worthy minorities ought to have lower default rates than whites.

But, after reviewing data on 220,000 Federal Housing Administration mortgage loans made between 1987 and 1989, the study found that black borrowers had twice the default rate of whites.

"The problem is they don't even consider income in their study," argues John Taylor, president of the National Community Reinvestment Coalition, a Washington group made up of 480 community organizations. In January, the NCRC published its own 20-city survey of America's worst lenders.

Conservatives may use the Canner Study to show that CRA legislation is unnecessary. CRA provisions have forced banks to provide more credit opportunities to communities with low- or moderate-income residents.

Arguably, discrimination may not exist for home loan applicants who have strong financial qualifications. But race can be a decisive factor in approving or rejecting marginal cases. "The differences are striking at the margins," says William Hunter, who in March became senior vice president and director of research of the Federal Reserve Bank of Chicago.

Hunter has reassessed data from a widely cited 1992 Boston Federal Reserve Bank study on mortgage lending. "A marginal minority borrower with bad credit history and a high debt-obligation-to-income ratio has only a 16% probability of being approved," he says. "A marginal white borrower with the same characteristics has a 70% chance of being approved."

Meanwhile, as support for the CRA wavers, fair-lending advocates are using diplomacy to deal with mortgage lenders. "We're trying to use two strategies here," says Morris Williams, associate director for the Coalition for Neighborhoods in Cincinnati and vice chair for the National Community Reinvestment Coalition.

First, he is building friendly links with lending institutions that voluntarily reach out to the community. "But for those that are resistant," Williams says, "we're going to depend on the strength of the CRA or the Justice Department to enforce the Equal Credit Opportunity Act."