BOSTON'S BANKERS are congratulating themselves these days, pointing with pride to the sharp increase in mortgage loans they've been making to black and Hispanic borrowers. According to the Massachusetts Bankers Association, loans to minorities jumped 142 percent between 1990 and 1993. And in 1994, says City Hall, they climbed another 69 percent.
Good news? Sure -- unless the banks were counting on all those loans being paid back. If that's the case, the celebration may prove somewhat hollow.
Then again, it may be public relations, not loan repayments, that are uppermost in the bankers' minds.
For five years, banks have been bombarded with attacks on their "racial bias." The Federal Reserve Bank of Boston, the US Justice Department, US Representative Joe Kennedy, community activists, the media -- they've all joined in the bank-bashing. It has become a commonplace that mortgage lenders practice racism. The proof? Statistics showing that loan applications from blacks and Hispanics are turned down more often than applications from whites.
The only way to end the bad PR, the banks decided, was to plead guilty to the racism charge and alter the offending statistics. The critics want them to approve more loans to minorities? Fine, more loans it is. Some banks, Fleet Financial in particular, began lowering their qualifications. Under its InCity lending plan, aimed at the neighborhoods of Dorchester, Mattapan, and Roxbury, Fleet no longer requires down payments and doesn't charge closing costs or points.
So now the number of minority loans is up, and Boston's bankers are being patted on the head.
"The banks are starting . . . to have commitment to the community," Mayor Tom Menino said. "It shows the banks in our city have social responsibility." Boston Fed president Cathy Minehan -- whose agency launched the bankers-are-bigots campaign in 1989 -- offered her own blessing: As "we look back at the accomplishments," she said last Wednesday, "everyone in this room has every reason to be proud."
Yet for all the accusations of racial discrimination, there's a curious absence of names and faces. Who are these bigoted loan officers who keep turning down minority applicants? Where are these qualified borrowers whose skin color blocks them from getting mortgages? Nobody seems to know. All the evidence is statistical, not personal. If racism in bank lending were as pervasive as all that, surely there would be a long litany of cases illustrating it. Why isn't there?
The same statistics that "prove" bias against blacks and Hispanics, by the way, prove bias in favor of Asians. In 1990, white mortgage borrowers nationwide were rejected at a rate of 14.4 percent; for Asians, the rate was 12.9 percent. Three years later, the pro-Asian "bias" persisted: 15.3 percent white denials versus 14.6 percent Asian. Are mortgage lenders "yellow supremacists?" Or could it simply be that Asian borrowers tend to be better credit risks?
Creditworthiness, after all, is what lending is all about. The real test of bias doesn't lie in who gets mortgages, but in who pays them back. If bankers were really discriminating on racial grounds, turning down black applicants who were just as creditworthy as whites, the default rate among whites should be higher. That is, if black borrowers were being unfairly held to higher standards than whites, blacks who did get loans should be better credit risks, and less likely to default.
But as a matter of fact, blacks are more likely to default. In a recent study, economists at the Federal Reserve tracked 220,000 federally insured mortgage loans made nationally in the late 1980s. They discovered "a higher likelihood of default on the part of black borrowers compared with white households." All other things being equal, "losses tend to be greater on loans extended to black borrowers or on properties located in census tracts in which a larger proportion of blacks reside."
In short, the discrimination that is supposed to be so widespread is nonexistent. Black loan applicants get approved less often than whites because white borrowers tend to be better credit risks. Whites are approved less often than Asians because Asian borrowers tend to be better risks. It isn't about bigotry. It's about good banking judgment.
So what does it mean when Boston banks start making many more loans to minorities? Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs. If so, get ready for the deadbeat rate to start climbing in predominantly black neighborhoods.
Actually, it already is. Dorchester housing analyst John C. Anderson has compiled the data: Of bank mortgage loans made in Boston since Jan. 1, 1993, there are already 80 so deeply in default that foreclosure proceedings have begun. Of those 80, more than half -- 42 -- are in Dorchester, Roxbury, or Mattapan. Of those, nearly one-fifth are Fleet Bank mortgages. Since 99 percent of mortgage defaults occur on loans that are more than two years old, the numbers will only get worse.
Question: When the coming wave of foreclosures rolls through the inner city, which of today's self-congratulating bankers, politicians and regulators plans to take the credit?