Are Big Banks Discriminating against Blacks and Hispanics?

A recent story in the Wall Street Journal  brought to light the fact that most jumbo loans by big banks are made to white home buyers.  In fact, a whopping 67% of jumbo loans made by the 10 largest U.S. retail banks were made to white buyers? This situation is causing problems for big banks as they face two regulatory mandates: reduce risk and lend to a diverse clientele.

The country’s banks are increasingly focused on making jumbo mortgages, partly in response to regulatory pressure to curb risks. However, these high-dollar loans predominantly go to white and Asian borrowers, contributing to a decline in the share of mortgages that go to Hispanics and blacks.

The biggest U.S. banks are tilting toward these high-dollar mortgages as they overhaul loan operations. And jumbo loans, which were less important during the subprime-loan boom, are helping banks take on less risk, as mandated by regulators in the postcrisis era.

These loans, however, could put banks at odds with another federal regulatory mandate—one that says lenders should serve a racially diverse set of customers. As they approve relatively more jumbos, major banks are granting fewer mortgages to African-Americans and Hispanics than just before the crisis.

For banks, “it’s one of those damned if you do, damned if you don’t situations,” said Stu Feldstein, president at SMR Research Corp., a mortgage-research firm in Hackettstown, N.J.

The Journal analyzed data on every mortgage approval reported to the federal government for home purchases in 2007 and 2014, the most recent available, including borrower race or ethnicity. In that period, each of the 10 biggest U.S. retail banks increased the share of its mortgage approvals that are jumbos.

Jumbos, loans above $417,000 in most markets, are attractive because they typically feature high credit scores, big down payments and low default rates. And they aren’t linked to the government programs that cost banks tens of billions of dollars in fines related to the subprime-loan debacle.

These loans predominantly go to white and Asian borrowers, the analysis showed. In 2014, 3.0% of the biggest banks’ jumbo borrowers were Hispanic and 1.3% were black. As the 10 big banks issued proportionally more jumbos, they collectively decreased their share of all home loans to blacks and Hispanics. Their proportion of lending to those minorities also fell in non-jumbo mortgages alone, though not by as much.

Among all approved mortgage applicants from the 10 banks, 5.3% were black in 2014, down from 7.8% in 2007; 7.4% were Hispanic, down from 10.6%.

Just as the subprime customer was the ideal borrower for some banks before the crisis, the jumbo borrower is most appealing for many banks now. While the jumbo uptick isn’t solely responsible for lending declines to some minorities, these loans epitomize the direction banks are turning their mortgage operations—toward safer, more-affluent customers who tend to be white or Asian.

This poses an existential question for regulators and executives almost a decade since the crisis: Are banks tools to stimulate economic growth and deliver profits for shareholders, or are they like utilities, whose primary purpose is to deliver valuable services to a broad spectrum of society?

The Department of Housing and Urban Development is looking into mortgage-lending declines to some minorities, said Bryan Greene, HUD General Deputy Assistant Secretary for Fair Housing and Equal Opportunity, declining to specify whether it was examining specific lenders or products. A number of the federal agencies overseeing fair lending have said there isn’t necessarily a conflict between fair-lending requirements and new mortgage regulations or jumbo lending.

Regulators have fined two smaller banks, one focused on jumbos, in the past nine months for not lending enough to blacks and Hispanics. Prosecutors have said they are developing other cases.

Have you worked with minority buyers who’ve struggled to get jumbo loans? We’d love to hear from you.

  • RE_Insider

    We received this email from one of our readers: I don’t think the Banks are discriminating as much as the Latino and Black communities have remained in a status quo situation.

    The drop out rate from high school is very high for these groups. The expectations are lower. The Latinos in their 40’s are just starting to discover that manual labor and less skilled jobs do not pay enough to allow them to qualify for the high dollar homes. But I see more of them starting to push their kids into college and professional occupations.

    I have dealt with only a few Black buyers and while motivated to buy they aren’t motivated to save. So the programs I find best for them are the Fannie & VA programs.

    On the other hand those making the money in the entertainment industry are all for price bragging.

    I have not had a problem putting these groups into a property that they can financially qualify for. It’s just usually not the high dollar ones for the most part.

    They are often victims of their own Race. Feeling that a fellow Spanish speaking individual will give them better treatment they often end up with a less compassionate agent & loan officer that will only show them the top of their budget.

    If I ever suspected a client was being discriminated against by a Lender I would move my client immediately to another.

  • RE_Insider

    And another email from a reader: It is this simple! If you qualify for the loan it should not be determined by your skin color. If you don’t qualify it is, most likely, not due to your skin color.

    Quit whining and clean up your credit. The pressure to approve loans for those who do NOT qualify should then be rejected regardless of what the stats say.

    After what we have all seen and experienced in the financial world (bail outs)…..enough already!!

  • RE_Insider

    And another email from a reader: I do not usually work with the public. But a friend asked me to assist someone. I as shocked as I think an FHA lender is blatantly discriminating against her and violating the law. She has 1/3 of her income from child support for 3 kids. She was awarded such in the divorce @ 10 years ago.

    The father works for a public entity. The funds are deducted directly from his pay by the County District attorney, and deposited into her bank account. Yet, said lender will NOT count this as income to the family.

    NONE of it, as the amount from the divorce decree years ago does not match what is deducted NOW (this decree is from years ago) and has been adjusted OFFICIALLY over time, answer is NO. $ paid to her by DA, answer is still NO. $ will still be paid forward for 5+ years, answer is still NO. The funds have been received well over 5+ years, answer is still No.

    She is a minority, female head of household. I am in shock!