Karen Petrou: The Coming Fair-Lending Fracas
A week ago Thursday, I was honored to participate in a Congressional Black Caucus Foundation forum assessing the extent to which the Fed exacerbates U.S. economic inequality. Views were mixed on that front, but several panelists stoutly condemned financial institutions for actively discriminating against people and communities of color and the Fed for allowing them to get away with it. That won’t be the last we hear of this.
As our recent assessment of the latest mortgage data make clear, these allegations are not without merit. That underlying factors are complex and sometimes include contradictory evidence does not belie the fact that data remain problematic, the industry is deeply distrusted, and the White House has made racial equity a top-priority Presidential action item. First to what the data do and don’t show and then to what will be done about them unless some of the things that can instead be done are quickly done.
The latest HMDA data show troubling denial disparity ratios (DDRs), interest-rate, and cost disparities when minorities are compared to whites. The DDR for Blacks was 2.6:1, rates were .125 percentage points higher, and the cost of a loan was 38% more. Black credit scores were the lowest among demographic groups (690) and loan amounts were the smallest, but these differences are still striking.
Little noticed but even more puzzling are the DDRs for Asians versus whites. Asian DDRs were 1.4:1 even though credit score and loan amounts were the highest of all demographic groups. …