The cost of bank bias.

African-Americans receive less credit. Literally. Recent federal data reveal blacks of virtually all income groups get less credit--including home mortgages, consumer credit and business loans--than any other American group. That's not because they are in a higher risk category. To a large extent, blacks get less credit because of discrimination.

The limited availability of home mortgage credit for blacks is reflected in their rejection rates. In 1990, data collected under the Home Mortgage Disclosure Act (HMDA) showed that nationally 33.9% of conventional mortgage applications filed by blacks with banks and savings and loan associations were denied. The rate for whites was 14.4%. For Hispanics, 21.4%, and for Asians, 12.9%. The rejection rates for federal government-backed mortgages were similar: blacks, 26.3%; whites, 12.1%; Hispanics, 18.4%; and Asians, 12.8%.

A borrower's ability to obtain a home mortgage loan depends theoretically on his or her income, existing debt, and the applicant's credit history. The HMDA study shows that loan applications by blacks have been disproportionately rejected.

For applicants whose annual incomes were less than 80% of the median income in a given metropolitan statistical area (MSA), the rejection rates for conventional mortgages were: blacks, 40.1%; Hispanics, 31.1%; whites, 23.1%, and Asians, 17.2%. When applicants' incomes were in the 100% to 120% range of the MSA median, rejection rates were: blacks, 26.3%; Hispanics, 19.1%; whites, 11.2%; and Asians, 12.6%. Surprisingly, even when blacks' incomes were well above average (more than 120% of the MSA median), they still had the highest rejection rate: blacks, 21.4%; Hispanics, 15.8%; whites, 8.5%; and Asians, 11.2%.

Evidence based on day-to-day lending points to racial and ethnic bias. A market research firm conducted "blind tester" surveys in which minority and white applicants (essentially identical with respect to employment, income, assets and credit histories) applied at 50 banking offices for mortgage loans on comparable properties. The treatment they received differed: The minority applicants waited longer to speak to a lending officer, received less detailed explanations of loan options, and were told to anticipate longer approval times. Blacks are also less able to obtain other types of credit. In 1989, a Federal Reserve Board survey of consumer finances found, for example, in that year, 64.7% of all families in the country owned their own homes. Among different demographic groups, the percentages of families that owned their homes were: whites, 67.9% and minorities (mainly blacks, Hispanics and Asians), 42.8%. About 38.7% of the families had outstanding mortgages on their homes. The proportion for whites was 40.9%, and for minorities it was 23.7%. So, it is clear that blacks and other minorities have less access to mortgage credit.

Furthermore, only 1.1% of minority families had home equity loans versus 3.6% of whites. Only 32.4% of minorities had credit cards compared with 41% of whites. For car loans, the proportions were 27% of minorities to 36.3% of whites. Black-owned businesses also face obstacles. For example, in surveys of black-owned companies in Atlanta,; Dade County, Fla., Miami,; and St. Louis, a pattern emerged. Black applicants were turned down at a higher rate than whites; were more often required to have collateral; needed cosigners or guarantees even when they had firm government contracts; and usually raised less working capital using such contracts as collateral.

In summary, while blacks' higher levels of unemployment and lower levels of income do expose lenders to greater risk, a major reason for the lending gap appears to be discrimination.