`Test' Home Loans

LAST fall the Federal Reserve Board released data showing a wide gap in home loans to white and black applicants with comparable incomes. Under a congressional mandate the Fed reviewed more than 5 million mortgage and other home-loan applications received in 1990 by the 9,300 federally chartered banks and thrifts. The study revealed that at all income levels, black homebuyers were turned down for mortgages at more than twice the rate of white borrowers.

Subsequent computerized breakdowns of the Fed numbers show how pervasive the lending gap is. The Wall Street Journal, for instance, analyzed lending institutions that received 50 or more applications from whites and 50 or more applications from blacks for loans to buy one- to four-family residences. Nationwide, 85.3 percent of white applicants were approved in 1990, but only 66.6 percent of black applicants, for a differential of 18.7 percent.

Similarly, in most states the gap in loan approvals between white and black borrowers was 10 to 20 percent. In 16 states, the gap exceeded 20 percent.

Because the Fed data don't include such important lending information as the applicants' credit histories or property appraisals, it's impossible to say with certainty that the mortgage gap is attributable to racial discrimination. Many bankers insist that the gap results from straightforward credit analysis: Blacks in America have lower average incomes than whites, and many black applicants lack the credit history - especially as to repayment of credit-card debt - that banks look to in determining borro wers' creditworthiness.

But experts also note that:

* Many banks make little effort to establish branches in low-income neighborhoods and to understand the needs and oppor- tunities in such communities.

* In analyzing applicants' credit history, many banks ignore rent and utility records - indicia of lower-income people's ability to make periodic payments.

* Black applicants report a lack of assistance from bank officials in completing unfamiliar loan forms or of advice in ways to improve creditworthiness.

* Many banks simply don't want to bother with carrying, or reselling in the secondary market, relatively small home loans in marginal neighborhoods.

So while bankers may say that money's money, and that they are just as eager to collect interest from safe black borrowers as from whites, in fact racism appears to exert subtle influences on mortgage lenders. The industry culture has not fostered openness and innovativeness in meeting the needs of black borrowers.

The Fed study certainly justifies further research into possible racial discrimination in home lending. This should include extensive "testing" - using undercover regulatory personnel to apply for home loans. Testing has been effective in identifying and deterring discrimination in the home-buying and rental markets.

Meanwhile, federal regulators need to toughen their enforcement of the Community Reinvestment Act, which requires banks and thrifts to make loans in all communities where they accept deposits. In considering bank merger and interstate branching applications, regulators should weigh CRA compliance as heavily as lenders' safety and soundness.