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Strengthened laws, lawsuits seen as tools to get home loans

Racial disparity in mortgages concerns housing advocates, legislators, industry.

Can racial disparities in lending be fixed?

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By Ken McCall, Staff Writer Updated 11:57 PM Saturday, May 1, 2010

Much of the predatory, high-cost and risky lending that almost brought down the nation’s economic system was focused on minority and low-income communities, advocates say, and it’s up to the federal government to make sure it doesn’t happen again.

“We have this huge financial crisis, and largely the epicenter of it is the black and Latino community,” said John Powell, director of the Kirwan Institute for the Study of Race and Ethnicity at Ohio State University. “So what we’re asking the federal government to do is to really think about the racial implications of this.”

A Dayton Daily News examination of 2008 Home Mortgage Disclosure Act data found racial disparities exist in the Dayton area at every income level. Even upper-income blacks in an eight-county area were denied loans more often than low-income whites.

Josh Silver, at the Washington D.C.-based National Community Reinvestment Coalition, said the nation has a “sad legacy” of racial discrimination in housing that has now harmed everyone. The risky, subprime loans that caused the county’s financial crisis, he said, “were targeted at communities of color.”

“So now you’re seeing these upticks in denial rates because people of color have been disproportionately damaged by the foreclosure crisis,” he said. “So this makes the task of rebuilding even harder.”

Rep. Mike Turner, R-Centerville, a former mayor of Dayton, said he was “troubled” by the statistics in the Daily News report.

“Denying loans based on race is illegal,” Turner said in a written statement. “These statistics also underscore a need to keep homeowners in their homes, and fix structures before they fall into blight.”

Turner, however, declined to state support for any specific proposals aimed at slowing or reversing the patterns outlined in the stories.

Interviews with eight housing and fair lending advocates found a strong consensus on the steps needed, including some that have backing from the banking industry. However, legislative hurdles — daunting ones in some cases — remain.

Here are the proposals in a nutshell:

Reform the CRA

At the top of every advocate’s list is to strengthen the Community Reinvestment Act, something that’s not currently being considered by Congress.

The CRA, enacted in 1977, was aimed at preventing redlining, the lending practice of refusing loans to certain — usually predominantly black — neighborhoods. The act requires banks to report on their lending activity and federal agencies to evaluate the banks and issue annual report cards.

But, the advocates say, the act does not cover mortgage brokers and other financial lending institutions that issued some of the riskiest, most predatory loans during the last decade. They want the antiquated CRA to extend to all companies that make home loans.

“If nothing else, this crisis has taught us that there were too many parts of the financial industry that were not accountable,” Silver said. “We need to strengthen the CRA to not only apply to banks, but independent mortgage companies and Wall Street investment banks, so this type of thing never happens again.”

While the banking industry opposes some of the reforms called for by advocates, an official from the Ohio Bankers League said his organization was all for extending the CRA.

The current, limited law gives mortgage brokers, credit unions and other consumer credit companies an unfair advantage over banks because they don’t have to comply with the federal standards and reporting regulations, said Jeff Quayle, the league’s senior vice president and general counsel.

“I can’t think of a reason not to extend equal regulatory coverage,” Quayle said. “If it’s good policy, it should be extended to all lenders.”

Create a consumer protection agency

Currently, seven “relatively weak” agencies have jurisdiction over lenders, Silver said. Not only does that make any rule changes hard to achieve, he said, but the agencies have conflicting missions of protecting both the consumers and the financial institutions.

“If we had one agency for whom consumer protection was the first priority, we may not have been facing this crisis,” Silver said.

Uriah King, vice president for state policy at the Center for Responsible Lending, said a strong consumer protection agency is the best solution for preventing a resurgence in toxic lending.

“It’s not just that toxic loans strip wealth and reduce real income and put people in foreclosure — it does all of those things — but it also crowds out good loans,” said King, who used to work at the Miami Valley Fair Housing Center in Dayton.

The Ohio Bankers League, however, opposes the creation of a new agency, Quayle said, mostly because it would add costs for banks and exempt other financial service providers such as auto dealers, finance companies, payday lenders and check-cashers.

“So, again, we’re debating the merits of a plan that doesn’t extend to everybody,” he said.

What the  lawmakers say

Sen. Sherrod Brown said he is working to create a strong consumer protection agency, one with rule-making authority and enforcement powers.

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