Study finds race differences in lending

Ingrid Scott-Weekley, Director
City of Grand Rapids Equal Opportunity Department
(616) 456-3027
Robert Upton, Jr.
City of Grand Rapids Equal Opportunity Department 
(616) 456-3027

City of Grand Rapids Equal Opportunity Department 
300 Monroe NW 
Grand Rapids, MI 49503


(May 14, 2002) -- This comprehensive study of mortgage lending discrimination in the Grand Rapids Metropolitan Area builds on and expands the City of Grand Rapids Fair Housing Taskforce's investigation of mortgage lending discrimination completed in 1999. The current study uses a variety of data sources combined with appropriate statistical analysis to uncover the extent of discrimination existing in mortgage lending in Grand Rapids. The study covers lenders who reported 50 or more home purchase loans in 1999 in the Grand Rapids Metropolitan Area. A total of 52 lenders, accounting for more than 90 percent of all HMDA reported loans are included in the study.

The report covers the following areas: (1) differential homeownership rates; (2) differential mortgage denial rates; (3) differential exposure and treatment in the sub-prime market (4) discriminatory conduct involving advertising and outreach, location and closures of lending institutions and whether such conduct can be characterized as "discrimination by class, race or both;" (5) differential treatment by race in information provided to customers; and (6) other information pertinent to completing a thorough analysis of mortgage lending practices.

Dr. Joe Darden, Ph.D. a professor of Geography and Urban Affairs at Michigan State University led a team of researchers in conducting the study. The other research consultants included: Sameh Kamel, Ph.D., Michigan State University, Gregory Squires, Ph.D. (Subcontractor), George Washington University, and Sally O'Connor, Ph.D. (Subcontractor), University of Wisconsin-Milwaukee. This team of consultants has a considerable amount of experience and expertise in conducting research and studies in the areas of housing discrimination and fair lending.

Among the important findings are:

  • Black and Hispanic households with the same education and income as white households have lower homeownership rates than white households.
  • Due to external factors, which may include discrimination in the housing and lending markets, whites have an advantage over blacks and Hispanics in their chances of owning a home regardless of whether blacks and Hispanics have the same socioeconomic characteristics.
  • Mortgage denial rates are clearly associated with race and income. In almost every loan category, non-whites were denied loans more frequently than whites, and low-income applicants were denied loans more frequently than higher income applicants.
  • Minority and integrated neighborhoods received a much lower share of conventional home purchase or refinancing loans than their representation in the total population.
  • Sub-prime lenders have substantially increased their presence in Grand Rapids, particularly, among minority and low-income borrowers. This finding suggests there is a strong probability that minority low-income borrowers, some of whom may qualify for conventional loans, are not receiving them.
  • Blacks comprised 7.2 percent of the MSA population but received only 1.2 percent of the loans purchased by Fannie Mae and 1.0 percent of the loans purchased by Freddie Mac. This underrepresentation for blacks also occurred among Hispanics but to a slightly lesser degree.
  • Hispanics comprised 6.2 percent of the population but received only 1.4 percent of the loans purchased by both Fannie Mae and Freddie Mac.
  • A majority (55 percent) of the 29 lending institutions surveyed did not engage in outreach to the minority community by visiting minority organizations or neighborhood associations to inform them of opportunities to obtain home mortgage loans from their institution.
  • Of the 85 branch offices in the sample, only 6 (or 14 percent) were located in service areas that comprised more than 50 percent racial minorities.
  • An overwhelming majority (87 percent) of lending institutions in Kent County advertise through newspapers. Among the newspapers used, the Grand Rapids Press exceeded all others with 87 percent of the lenders advertising in it.
  • Results of the analyses confirm the hypothesis that racial discrimination exists in the Grand Rapids mortgage market.

Among the important recommendations are:

  • Since racial difference in socioeconomic characteristics cannot account for the lower black and Hispanic homeownership rates, more attention must be given to policies and programs to further reduce mortgage borrowing constraints faced by blacks and Hispanics.
  • More lending institutions in the Grand Rapids MSA should introduce innovative programs such as zero, or near zero down payment mortgages for eligible borrowers.
  • Given the substantial increase in sub-prime lenders in the Grand Rapids area particularly among minority and low-income borrowers, the Attorney General of the State should use the appropriate means to determine the nature and extent of predatory lending in the Grand Rapids area.
  • More lending institutions should advertise in minority-oriented media.
  • Representatives from lending institutions should engage in more effective outreach by visiting black, Hispanic, Asian American, or Native American organizations/neighborhood associations to inform them about opportunities to obtain home mortgage loans from their institution.
  • Since the performance of lenders in terms of loan denial rate disparities varies, community organizations and agencies should annually publicize the rankings of each lender based on its performance in loan denial rates by race, income, and racial composition of neighborhoods, in order to hold lending institutions accountable to all segments of the Grand Rapids community.
  • Community organizations should conduct more workshops to educate residents (especially those from neighborhoods with higher denial rates) to check, upgrade, and/or correct their credit report before applying for a home mortgage loan.
  • Monitoring should occur of any poor performing lending institutions to determine (a) the racial diversity of their loan officers and others who participate in loan denial decisions, and (b) the operation of the mortgage underwriting process in order to detect which factors influenced the underwriter's decision to deny each applicant a loan.

The City of Grand Rapids and the Fair Housing Center of Western Michigan intends to address the study's recommendations by partnering with lending institutions and community stakeholders.