CLEVELAND — A report released by the Cleveland State Maxine Goodman College of Urban Affairs indicates home purchase loans are denied more often for African American applicants than white applicants in Northeast Ohio.
The report created by Mark Salling Ph.D. indicates the overall loan denial rate for white applicants here in Northeast Ohio is about 23%, while Salling said the loan denial rate for African Americans was nearly 50%.
Salling believes the findings not only indicate an inequitable, discriminatory situation, but it also creates an economic climate that could be damaging to local neighborhoods and the residents who live there.
“It confirms what we’ve know for a long time,” Salling said.
“This indicates our American dream is failing in many neighborhoods, for many people, for African Americans in particular," Salling said. “It means the neighborhood suffers quite a bit, there’s a lack of investment, there’s a lack of home improvements, the housing declines.”
Salling said the report is based on 2017 census tract level data provided by the Home Mortgage Disclosure Act, on the number of loan applications that are submitted and the number of home purchase loans that are finalized.
Salling's report outlined the top ten Northeast Ohio banks based on the number of loan applications taken.
According to the CSU report, Key Bank and U.S. Bank had a loan denial disparity betweeb African American and white applicants of more than 20%, while Fifth Third Bank, Quicken Loans and PNC Bank had a loan denial disparity of more than 15%.
The report indicated Huntington Bank, First Federal of Lakewood, Third Federal Savings and Dollar Bank had a loan denial disparity of less than 10%.
“I think there is a clear pattern that needs to be addressed by the lenders and by the public,” Salling said. “I would hope the institutions would take this information seriously.”
News 5 took in responses from all ten banks to the CSU report.
All of the banks responded quickly; here is a summary of their statements:
"We conduct fair and responsible banking by treating all individuals equitably."
"We regularly conduct fair lending reviews of our mortgage lending."
"We promote a strong culture of diversity and inclusion within our company."
A few of the banks questioned the validity of the CSU report, and called it "shortsighted" in its findings.
A few of the banks said using HDMA federal data as single source doesn't include an applicant's full credit history, income, debts, appraisal data, and doesn't contain enough data points.
Dollar Bank was the only lending institution to grant an on-camera interview.
Mike Henry, Dollar Bank Senior Vice President of Residential Lending, told News 5 Dollar Bank is working toward closing the disparity with credit enhancement and borrower education programs.
“What we look at is, can we help people if they’re in a credit situation?" Henry said. "We have programs set up to help you improve your credit score.”
Dorothy Curtis, Dollar Bank Vice President of Community Development told News 5 the programs are having an impact.
“We work with them one-on-one, we get copies of the credit report from all three different credit agencies, to make sure we’re addressing each one, because they all contain different information," Curtis said. “It’s an educational problem as well, people have to know what’s available to them, they have to know to ask the right questions, and not be afraid to ask the right questions.”
Complete statements from each bank are listed below.
Hal Martin, economist with the Federal Reserve Bank of Cleveland, backed up the CSU report findings, referencing a study he published in the Journal of Urban Economics.
The study audited 6,000 lenders nationwide, with researchers posing as African American and white borrowers contacting lenders via email.
Martin said the study clearly uncovered mild discriminatory practices among lending institutions when it comes to loan approval for African American applicants.
“This disparity does exist out there in a couple of different dimensions and we see it," Martin said. "The next step is to ask why does it persist, and what levers can we pull to reduce it.”
“The credit indicators that banks traditionally use may not be as well developed in disadvantaged, minority populations," Martin said.
Former Cuyahoga County Treasure Jim Rokakis believes local banks need to change their mindset in approving smaller loans, and if that doesn't happen, it will guarantee the cycle of decline in predominately African American neighborhoods.
“Banks don’t want to be hassled with $20,000 or $30,000 mortgages in Mount Pleasant, or in Kinsman," Rokakis said.
Rokakis added banks irresponsibly caused the 2008 housing crisis, but will now not be part of the solution.
"They helped to damage the neighborhood by making loans that shouldn’t have been made. It caused abandonment, but now if you want to come back and stabilize the neighborhood, we’re not going to give you a loan,” Rokakis said. “The state has be more actively involved, the federal government has to adopt policies that help to repopulate some of those communities.”
The banks involved in our story issued the following statements:
Fifth Third Mortgage Company
"Fifth Third Bank is committed to fair and responsible banking by treating all individuals equitably wherever it conducts business. Fifth Third regularly conducts fair lending reviews of its mortgage lending operations to ensure that customers receive fair and equitable treatment.
"As required by the Home Mortgage Disclosure Act (HMDA), Fifth Third annually publishes specific detailed information about its mortgage lending activities in the areas where it does business. This HMDA data includes the type of loan, whether there was a co-applicant, whether the loan was approved or denied, and the gender, ethnicity, race and income of the applicant(s). The publicly reported data does not, however, include significant information at an individual loan-level concerning creditworthiness that a lender would use to determine whether or not to approve an application (including an applicant’s credit history, credit score, property appraisal and so on).
"Examining denial rates across different race, ethnicity, and gender groups as reflected in HMDA data does little to explain why potential differences in those denial rates exist. However, examining differences in numbers of applications and in loan denial rates can still be valuable to lenders in evaluating their lending operations. To that end, Fifth Third is committed to regularly examining its data to ensure that credit decisions are being made based on credit characteristics as specified in its underwriting criteria, and not on race, ethnicity, or gender. Moreover, Fifth Third has implemented fair lending training and compliance programs to ensure that its underwriting criteria are applied fairly and consistently to all applicants."
First Federal Savings of Lakewood
"As a mutual bank, owned 100 percent by our customers, we closely monitor all the ways we actively help to create healthy and vibrant communities. This includes our focus on lending, especially important given that traditional banks are originating fewer mortgage loans. In fact, approximately 60 percent of mortgage loans nationally are now originated by non-bank lenders.
"Over the past five years First Federal Lakewood has achieved higher origination rates and significantly lower denial rates for African American applicants than market average in Cuyahoga County. And, contrary to local market trends of branch consolidation and moving away from urban centers, First Federal Lakewood expanded our reach into the City of Cleveland. Our Gordon Square branch (6610 Detroit Ave.) opened in 2014 and our new branch location in Dave’s Midtown Market (1929 East 61st St.) opened this summer to serve a low, moderate and diverse economic base. We also have a mortgage lending office at the corner of W. 44th and Detroit Ave.
"Although First Federal Lakewood is one of the smallest banks in Cleveland, our strategic choice to direct our growth in Cleveland closely aligns with our community outreach efforts which focus primarily on housing outreach and financial education. This includes emphasis on organizations and programs that offer services for the underbanked and minority populations, including ESOP, Habitat for Humanity, Detroit Shoreway CDC, and Catholic Charites Migration and Refugee Services among others. We also have a robust product offering in mortgage lending, including not only traditional mortgage lending products, but also partnerships with Fannie Mae for HomeReady and HomeStyle loans, Freddie Mac for HomePossible loans and the VA for the IRRRL loan."
Huntington National Bank
“Huntington remains committed to serving the lending needs of our communities. We have a long standing history of helping both consumers and businesses meet their financial goals. We look forward to continuing to be a source of funding for our customers.”
“KeyBank has a strong culture of diversity and inclusion within our company, how we operate, and the communities we serve. We do not discriminate in lending and do not lend based on race. Our lending decisions are based on predetermined criteria and any decision to deny an applicant is based solely on the financial information and data associated with the applicant, including credit scores and other ratios.
"Our focus on financial wellness enables us to work with clients and help put them on a path to home ownership. We believe our mortgage products provide value with programs that fit the needs of our clients, including our Key Community Mortgage product, aimed at first-time homebuyers. We also offer FHA, Fannie Mae HomeReady and VA loan products so that clients have options available to help them achieve the dream of home ownership. In addition, KeyBank regularly partners with community development organizations to increase access to home ownership and support affordable housing development in Greater Cleveland. Organizations we’ve worked with include CHN Housing Partners, Enterprise Community Partners and Cleveland Neighborhood Progress (CHN, CNP KeyBank Partnership) [chnhousingpartners.org].
"Since 2017, KeyBank has made community investments totaling more than $423.4 million in Northeast Ohio as part of our National Community Benefits Plan. This includes more than $93 million in mortgage lending to low-to-moderate income individuals and communities and more than $228 million in community development projects which include affordable housing developments. We have also made trans-formative philanthropic investments in Northeast Ohio totaling more than $31 million. This support involves programs and organizations like Say Yes to Education and JumpStart, which promote workforce and economic development, putting people on paths to grow and invest in our neighborhoods through home ownership.
"KeyBank takes our commitment to the community seriously. In fact, KeyBank has received nine consecutive outstanding ratings from the Office of the Comptroller of the Currency for exceeding the requirements of the Community Reinvestment Act. KeyBank is the only bank to have achieved this distinction since the inception of the Community Reinvestment Act. We’re proud of this record but more so of our overall record helping clients and communities thrive.”
"PNC firmly believes that discrimination of any kind is wrong and we do not consider race, ethnicity or other prohibited factors in making credit decisions. PNC does consider a variety of credit-related factors in deciding mortgage applications, including, for example, the customer’s credit history, credit score, income, existing debts and the overall loan amount compared to the value of the property.
"Throughout the application process, PNC ensures that we are treating customers fairly through our robust fair lending compliance program, geared toward preventing discrimination on the basis of any prohibited factors. Our fair lending compliance program and lending decisions are regularly reviewed by the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB).
"PNC’s business model is focused on serving our customers and our communities. We offer a full portfolio of products, including for low-to-moderate income individuals and households, as well as a full suite of Home Equity loans and lines. We also offer programs from Fannie Mae, Freddie Mac, FHA and VA.
"We think it is worth noting that PNC has received an “Outstanding” Community Reinvestment Act (CRA) rating as measured by the OCC in every evaluation period since the CRA began in 1977. This rating directly reflects our performance in several categories, including responsiveness to credit needs, borrower distribution among customers of different income levels, community development investments and community development services throughout our CRA assessment areas.
"And we are committed to all constituents in our communities. A couple of examples specifically in Cleveland include: the establishment of the PNC Fairfax Connection, which offers programming and partnerships and serves as a hub connecting the Fairfax community to services and cultural events throughout greater Cleveland; and PNC’s Home Lending Workshops, which are conducted in the community with the focus of preparing individuals for first-time home ownership by helping them to better understand the home buying process, the mortgage process, and preparing for their post-purchase responsibilities.
"PNC does not comment on third-party studies because we cannot be certain of methodologies used in the studies."
“Obviously, using HMDA as a single source to understand denials for mortgage applications is incredibly shortsighted. When only viewing HMDA data, you see a limited picture of a very detailed process. Without access to the applicant’s full credit history, income, debts, appraisal data and no less than 25 other data points, drawing conclusions and preparing academic reports from HMDA is simply an exercise in sensationalism.
"Lenders follow guidelines put forth by Fannie Mae, Freddie Mac, the Federal Housing Administration and Department of Veteran Affairs – and Quicken Loans is no different.
"Instead of using incomplete data and flawed conclusions to force a narrative, our community would be much better served to continue working together to address the root causes of mortgage denials for all residents -- a mission Quicken Loans will continue to champion.
"In Cleveland, Quicken Loans has been dedicated to helping residents stabilize housing in their communities and revitalize the city’s neighborhoods, as a lack of mortgage comparables, or comps, is a leading inhibitor to mortgage financing.
"To help advance this mission, we have provided Cleveland Neighborhood Progress with a $700,000 grant and are working closely with the organization to help in the important work of neighborhood stabilization. Quicken Loans also contributes to, and works alongside, organizations including Habitat for Humanity and the Western Reserve Land Conservancy to help address the need for property stabilization and affordability issues.”
Third Federal Savings
"We work closely in the community and with our community partners to help all borrowers have success as a homeowner.
"Through our HomeToday program, we offer seminars on not only how to prepare to buy a home, but also the fundamentals of home ownership, including monthly budgeting and savings for unexpected expenses. It’s not only about putting people in a home, but helping them to be successful once they are there.
"In addition, we contribute yearly to our community partners by awarding millions of dollars in grants for wrap around services to further support the communities we serve."
"Wells Fargo is proud to be the nation’s leading provider of home loans to ethnic minority borrowers. We’re committed to continuing our lending leadership to diverse groups and over the past two years have announced significant initiatives to expand home-ownership among African-American households:
"In 2017 we announced a 10-year national commitment to create at least 250,000 African American homeowners that includes $60 billion in home loans and $15 million toward homebuyer education and counseling initiatives. In the first two years of the commitment, we helped 42,947 African-American households purchase homes with $10.6 billion in originations. In addition, over that time we dedicated $4.7 million in homebuyer education and counseling focused on African-American customers.
"We make loan decisions on the basis of objective, credit-related factors that are in many cases not reflected in the data reviewed by the study, and race and gender are not considered when we review a loan application.
"Wells Fargo’s denial rates in 2017 were in line with peer lender rates according to our own analysis of available HMDA data. However, data reported by lenders under HMDA does not, standing alone, provide sufficient information for fair lending analysis because it omits important variables, such as credit histories and debt ratios."
"U.S. Bank takes great pride in our commitment to fair and responsible lending practices. Credit decisions are based on legitimate, nondiscriminatory factors."