NCPA - National Center for Policy Analysis

Minority-Owned Banks Harsh on Minority Borrowers

June 6, 2002

Banks owned by minorities are more likely than white-owned banks to reject mortgage applications from African-Americans and Latinos, according to a report being released today from the University of Southern California's Lusk Center for Real Estate.

The results would seem to refute the received wisdom resulting from a widely cited 1992 Boston Federal Reserve Bank study which showed that African-American and Latino mortgage loan applicants were 60 percent more likely to be rejected by banks than white applicants with the same qualifications.

At the time, the notion of cultural affinity was put forth to explain the apparent discrimination by lenders, assuming lenders are more sympathetic to people who share the same race or culture. The new study seems to suggest this isn't so.

  • Minority applicants with marginal credit didn't fare better at minority-owned banks than they did at those owned by whites.
  • Minority-owned banks in the study rejected loan applications by 35 percent of African-American applicants, while white-owned banks denied only 17 percent.
  • The denial rate was 16 percent for Hispanic applicants at minority-owned banks versus 13 percent at white-owned banks.
  • Bank ownership had very little effect on denial rates for Asian-American applicants, the study found.

Critics are attempting to discredit the findings by claiming that the size of the sample was too small.

The study's author, Raphael W. Bostic, a USC associate professor, examined 11,000 loan applications that were that were submitted to 273 community banks in about 35 metropolitan areas across the country during 1994 and 1995.

"The study shows that either white-owned banks don't have racial biases, or that minority-owned banks share the same biases as everyone else," Bostic said.

Source: Queena Sook Kim, "Minorities Fare Poorly on Loans at Nonwhite Banks," Wall Street Journal, June 6, 2002.

 

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