Disparities in lending popped up in 61 metro areas across the U.S. Credit: Reveal

Politicians across the country expressed outrage after a major media investigation revealed people of color are being denied equal access to home loans – and vowed to do something about it.  

Their concern grew from an analysis of 31 million federal home mortgage records by Reveal from The Center for Investigative Reporting, which informed coverage in dozens of local media outlets.

In Washington, D.C., the top Democrat on the U.S. Senate Banking, Housing and Urban Affairs Committee said legislation barreling through Congress would make the situation even worse. The bill, SB 2155, would gut provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that require mortgage lenders to disclose to the government detailed information on loan applicants, including key credit score data.

KEPT OUT

  • Read: For people of color, banks are shutting the door to homeownership
  • Read: Gentrification became low-income lending law’s unintended consequence
  • Read: 8 lenders that aren’t serving people of color for home loans
  • Listen: The red line: Racial disparities in lending
  • Learn: How we did our analysis
  • Explore: Search for lending disparities where you live, or text LOAN to 202-873-8325 to Reveal. Standard text rates apply.
  • Read: The full white paper
  • Watch: Struggle for black and Latino mortgage applicants suggests modern-day redlining

“The 2008 financial crisis wiped out half the wealth of Black and Latino families, and unfair lending practices like redlining continue to increase wealth inequality,” Sen. Sherrod Brown of Ohio said in a statement. “Congress should be working to make it easier for families to own homes and grow their wealth, not passing legislation that makes it easier for banks to prey on them.”

Reveal’s yearlong investigation was based on information publicly available under the Home Mortgage Disclosure Act. It found that in 61 metro areas across the country, including Atlanta, Detroit, St. Louis, San Antonio and Washington, people of color were significantly more likely to be denied a conventional home purchase loan than their white counterparts. This remained the case even after taking into account applicants’ income, the loan amount or the neighborhood of the property.

Reveal focused much of its reporting on Philadelphia, one of the largest cities with this disparity. The analysis found African Americans were 2.7 times as likely to be denied a conventional mortgage there. Although black and white people make up similar proportions of the area’s population, whites received 10 times as many conventional mortgage loans in 2015 and 2016.

Politicians in Philadelphia condemned the banking industry and promised action.

These disparities hurt all Philadelphians and likely impact my constituents disproportionately,” said Councilman Kenyatta Johnson, whose district includes the rapidly gentrifying neighborhood of Point Breeze.

Reveal’s analysis found lenders in that neighborhood denied nearly twice as many conventional home purchase, refinance and home improvement applications from African Americans as they made between 2012 and 2016. Johnson pledged to hold hearings on the matter.

Several of my colleagues have already indicated their interest in this subject, and I will work closely with them and stakeholders to define the problem and identify solutions,” he said.

In Pennsylvania, the ranking Democrat on the Senate Appropriations Committee, Vincent Hughes, said he “went ballistic” when he read Reveal’s report. He tweeted that the story exposed “a national crime centered in Phila.”

As hearings on the state budget opened, Hughes urged the state treasurer to pull government deposits from the lending institutions most responsible for the disparity.

“My charge will be to remove those funds from those institutions and put them somewhere else,” he said. Hughes said he also planned to raise Reveal’s findings with Pennsylvania Attorney General Josh Shapiro.

As part of its investigation, Reveal reviewed lending patterns for every mortgage originator in every neighborhood in America, using techniques similar to those employed by the Justice Department and Federal Reserve, which are charged with spotting discrimination. The analysis was independently reviewed and confirmed by The Associated Press, which shared the data with news outlets across the country.

Reveal found that banks nearly always passed government inspections under the Community Reinvestment Act of 1977, a landmark law designed to fight discrimination in lending. In fact, under a wrinkle in the law, banks were receiving credit for lending to white newcomers gentrifying previously blighted neighborhoods.

Many news outlets produced their own stories or added local angles to Reveal’s.

In Iowa City, Iowa, where Latinos faced the greatest lending disparity compared with whites, an AP correspondent used Reveal’s data to show that Hills Bank and Trust Co., one of two major lenders in the city, had a far higher denial rate for Latino applicants than its competitors.

In St. Louis, the St. Louis Post-Dispatch told the story of a mixed-race couple who wanted to buy a home in Old North St. Louis. The couple said they provided requested documents – from paystubs to student loan information – to U.S. Bank, which must follow the Community Reinvestment Act. The bank told the couple that even though they qualified for the loan, they needed to pick a different neighborhood.

Reveal found that in St. Louis, black applicants are 2.5 times as likely to be denied a conventional mortgage. However, although the man is mixed race, the couple said they did not think race had anything to do with their denial.

The Montgomery Advertiser spoke to several black residents in Montgomery, Alabama, where Reveal found African American applicants were three times as likely to be turned away as whites, and Asian applicants were 2.3 times as likely to be denied. Many were unable to get loans from traditional mortgage lenders and opted instead for predatory “rent-to-own” agreements, under which residents don’t accrue equity until the home is entirely paid off and can be easily evicted until that happens.

Similar stories graced the front pages of newspapers across the country, including The Virginian Pilot, Tulsa World, Lafayette (Louisiana) Daily Advertiser and Ocala (Florida) Star-Banner. In each of those cities, local journalists relied on elements of Reveal’s analysis to explore lending disparities in their communities.

Public radio stations working in partnership with Reveal and PRX used Reveal’s analysis to pose questions to local decision-makers and lenders.

In their responses to local journalists, industry officials dismissed the analysis, arguing that it does not prove that banks discriminate.

“I personally don’t believe that happens,” Jim Wickham, president of the Michigan Mortgage Lenders Association, told Michigan Radio.

In Detroit, Reveal found African Americans were 1.8 times as likely to be denied a loan as their white counterparts. In Lansing, Michigan Radio reported, “the odds are even bleaker for black applicants, who were more than three times as likely to face denial.”

In California, an AP correspondent used Reveal’s data to report that Latinos in the Golden State were being left behind by banks and other lenders that make conventional mortgages. In Los Angeles, Latinos make up about half the population but accounted for only about a fifth of all conventional mortgage applications. In Orange County, Latinos account for about 9 percent of applications.

Reveal’s methodology was conservative and did not pinpoint Southern California as one of the metro areas where Latinos were likely to be denied after controlling for income and other factors. But the lending disparities still alarmed civil rights groups.

“Redlining is not a thing of the past,” Dave Rodriguez, state director of the California League of United Latin American Citizens, told the AP.

“Lenders are missing the boat,” he said. “They still think, in many respects, that we are a high-risk population for loan products, so we get the most expensive products and the most penalties for nonpayment.”

Lenders and their trade organizations have rejected Reveal’s analysis. In a statement, the American Bankers Association called it “not just incomplete … (but) defective” for not including loan applicants’ credit scores and debt-to-income ratio, which is the relationship between the total amount of debt a person has – including student loans and car payments – and his or her income.

“It’s like trying to bake a cake without butter, sugar and frosting,” the group said. “It might look like cake, but it won’t be good.”

But the mortgage industry has fought for years to keep that same information hidden, and the association’s statement came as the latest controversy over whether the data should be public unfolded on Capitol Hill.

The Dodd-Frank Act mandates that credit score and debt-to-income ratio be disclosed under the Home Mortgage Disclosure Act. But mortgage lenders have successfully deflected efforts to implement the law – so the data remains secret.

Legislation moving rapidly through Congress goes beyond delaying the new reporting requirements, exempting thousands of financial institutions from complying with the law.

The Senate version, sponsored by Republican Sen. Mike Crapo of Idaho, is more narrowly crafted. It would exempt banks and credit unions with fewer than 500 mortgage loans in each of the previous two years. It recently passed the Senate banking committee with bipartisan support.

The consumer coalition Americans for Financial Reform calls the bill “a gift to bank lobbyists.”

According to Brown’s office, the Senate bill would exempt 85 percent of depositories from reporting information, making enforcement of civil rights laws nearly impossible.

But if consumer groups are concerned it could making it easier for banks to discriminate, some in the lending industry say it does not go far enough.

“While we support the spirit behind raising the threshold for banks and credit unions, we believe extending the exemption to include all small mortgage originators, including small independent mortgage banks, would better serve consumers and the marketplace,” the Mortgage Bankers Association said in a statement.

The House version of the bill, which passed last month on a 243-184 vote, is more sweeping. It would exempt banks and credit unions that made 1,000 or fewer mortgages in the previous two years or 2,000 or fewer lines of credit during that same time period.

The Trump administration, which has not sued a single lender for failing to lend to people of color, is backing the effort to gut the Home Mortgage Disclosure Act.

When he testified before the Senate bnking committee at the end of January, Treasury Secretary Steve Mnuchin called the bill a “thoughtful approach that better aligns our financial system to support economic growth in our communities.”

“I encourage the Senate and the House to work together to move legislation as quickly as possible,” he said.

Aaron Glantz can be reached at aglantz@revealnews.org, and Emmanuel Martinez can be reached at emartinez@revealnews.org. Follow them on Twitter: @Aaron_Glantz and @eman_thedataman.

Aaron Glantz was a senior reporter at Reveal. He is the author of "Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream." Glantz produces journalism with impact. His work has sparked more than a dozen congressional hearings, numerous laws and criminal probes by the Drug Enforcement Administration, FBI, Pentagon and Federal Trade Commission. A two-time Peabody Award winner, finalist for the Pulitzer Prize, multiple Emmy Award nominee and former John S. Knight journalism fellow at Stanford University, Glantz has had his work has appear in The New York Times, Chicago Tribune, NBC Nightly News, Good Morning America and PBS NewsHour. His previous books include "The War Comes Home" and "How America Lost Iraq."

Emmanuel Martinez

Emmanuel Martinez is a data reporter for Reveal. A graduate of UC Irvine, Martinez received his master’s degree from the University of Southern California, where he studied radio and data journalism. Prior to joining Reveal, he interned for KPCC, the Los Angeles NPR affiliate, where he helped reporters acquire, clean and analyze data. Martinez is based in Reveal’s Emeryville, California, office.