In what could produce the biggest burst of fair lending lawsuits in decades, mortgage companies and banks nationwide have begun disclosing new federally-mandated loan-pricing data that compare rates and fees charged minority mortgage applicants with those charged Caucasian applicants.
The new pricing disclosures are part of an expanded federal effort under the Home Mortgage Disclosure Act (HMDA) to target lenders who illegally charge minority home buyers more in rates and fees, or reject their applications more frequently than whites.
Thousands of lenders nationwide were required to collect and report on millions of 2004 home loan applications by last month, and to disclose racial, gender, ethnic, and other borrower characteristics alongside pricing data.
In September, the Federal Reserve Board and other regulators plan to issue a comprehensive national report summarizing the patterns found in lenders' data. In the meantime, however, all mortgage lenders who filed reports must also make them available to anyone who requests a copy. Civil rights and fair lending advocates already have blanketed hundreds of lenders with requests, and have begun to map out plans for litigation.
For example, ACORN, a nationally-active urban community rights group, says it has asked over 500 banks and mortgage companies for reports. The National Community Reinvestment Coalition has made dozens of requests as well. Though only preliminary results are available at the moment, some community activists say the pricing patterns in many lenders' files document apparent imbalances in treatment of minority home buyers versus whites.
Minority consumers, they say, typically appear to be twice or three times as likely to be charged higher, "subprime" rates and fees compared to white consumers.
"There are huge racial disparities in prime versus subprime" pricing, said Valerie Coffin, ACORN's national fair housing director.
John Taylor, president and CEO of the National Community Reinvestment Coalition, said there are "definitely differences in treatment" evident in the early reports from lenders, and these are likely to be challenged. "There will be lawsuits," said Taylor.
Banks and mortgage companies are aware of the potential dangers in the apparent imbalances in their data. "This is the most worked up I've seen people in a long time," said Robert P. Schmermund, senior vice president of America's Community Bankers, a lender trade group. The fears have more to do with the appearance of racial and ethnic disparities, not with acknowledgement of actual fair lending violations, he added.
Six federal financial regulatory agencies jumped into the fray last week by cautioning civil rights advocates and the public from drawing too many conclusions from the preliminary data now leaking out.
The Federal Reserve Board and five other regulators warned that the new HMDA data "do not include certain determinants of credit risk that may explain high (mortgage) prices, such as the borrower's credit history, loan-to-property value ratios, and consumer debt-to-income ratios."
As a result, said the agencies, "the data are not, by themselves, a basis for definitive conclusions regarding whether a lender discriminates unfairly against particular borrowers or takes unfair advantage of them."
Shanna Smith, president of the nonprofit National Fair Housing Alliance, agreed that the lack of credit scores in the data now becoming public "is a serious limitation," since creditworthiness is a critical determinant of the pricing of a loan.
Nonetheless, said Smith, the new data on millions of loan applications will likely produce lawsuits later in 2005, and possibly, federal government actions against some lenders, once auditors study full loan case files.
In the meantime, the best advice for home buyers, mortgage applicants and their realty agents: As newspapers and TV begin to report racial and ethnic pricing disparities over the coming weeks and months, hold your judgment. Even the government says the raw data alone -- absent examinations of credit and downpayment information -- won't really tell you who discriminated illegally and who didn't.