Kelly Zito, Chronicle Staff Writer Fewer Bay Area consumers were turned down for mortgages in 2002, according to a new study by an advocacy group. However, black and Latino applicants remained far more likely to be rejected than their white counterparts -- even those earning similar incomes. What's more, a growing number of home loans made to minorities across the United States were from so-called subprime lenders, said the Association of Community Organizations for Reform Now, or ACORN, of Washington, D.C. "Bank redlining and discrimination are still huge issues," said John Eller, head organizer at ACORN's San Francisco office. While the group's report, released earlier this month, showed that smaller percentages of whites, blacks, Latinos and Asians were refused home loans in 2002 in each of the region's large metropolitan areas -- San Francisco, San Jose and Oakland -- officials at ACORN maintain minorities face blockades to home financing. They point to the fact that in San Francisco black and Latino borrowers were two to three times more likely than whites to be denied a home loan. Asians and Pacific Islanders were about 1.4 times more likely than whites to be turned down. Mortgage industry officials, however, contend the gaps have little to do with discrimination and more to do with lack of access to information. For instance, Wells Fargo recently opened nine Bay Area offices in traditionally underserved minority markets, including Richmond and Oakland, in the last year. "Lenders can offer different programs, but (boosting minority homeownership) is hard if you don't have a market presence," said Brad Haller, regional manager for Wells Fargo Home Mortgage in the Bay Area. In addition, some experts contend it is not possible to draw many conclusions from the ACORN study because it omits certain data. According to ACORN's analysis, 20.7 percent of African Americans in the San Francisco metropolitan area, which includes Marin, San Francisco and San Mateo counties, were denied a conventional purchase mortgage in 2002, down from 23.7 percent in 2001 and 28.5 percent in 1997. The 17.2 percent denial rate among Latinos also dropped -- from 20.2 percent in 2001 and 23.6 in 1997. For Asians and Pacific Islanders, the denial rate was 11.9 percent, down from 13.9 percent in 2001 and 14.2 percent in 1997. About 8.2 percent of whites were denied home loans last year, down from 9.5 in 2001 and 12.1 in 1997. Home loan denial rates fell similarly in Oakland and San Jose. On the other hand, African American applicants in San Francisco were 2.5 times more likely to be denied a conventional mortgage than white applicants in 2002, up 0.4 percent from 2001 and up 6.8 percent from 1997. Even when applicants of different races had the same income, the disparities remained, the study found. Upper-income black applicants were denied 3.1 times more often than whites in the same income bracket. "Upper income" is defined as households earning more than 120 percent of the median income. Latino applicants were denied mortgages 2.1 times more often that whites, a 2.6 percent decrease from 2001, but a 7.2 percent rise compared with 1997 figure. Upper-income Latinos were denied 2.2 times more often than upper- income whites. In 2002, Asians were 1.44 times more likely than whites to be denied than whites for a conventional home purchase loan, a small dip from 2001 when Asians were 1.46 times more likely than to be denied, but an increase from 1997 when Asians were 1.13 times more likely than whites to be denied. Upper income Asians were 1.53 times more likely to be denied than upper income whites. "These numbers point to the fact that things are not perfect," said Raphael Bostic, a professor at the University of Southern California's Lusk Center for Real Estate who has studied racial discrimination in lending. "You would have liked to have seen more extreme closings of these gaps (in denial rates)." However, Bostic noted that research has shown that even when income levels are taken into account, minorities typically have lower credit scores - - an increasingly important criterion that lenders use to determine whether to approve a home loan. Though the annual study -- based on data on mortgages and applications collected by the federal government under the Home Mortgage Disclosure Act -- included some information on income, it did not include data on borrowers' credit histories or down payment levels. Without such data points, mortgage industry experts say, one cannot determine conclusively whether discrimination is taking place. "You can't make an intelligent statement because the data isn't complete, " said Doug Duncan, chief economist at the Mortgage Bankers Association in Washington, D.C. Duncan said the best studies about race and denial rates come from detailed studies of lenders' proprietary data, which are usually not made public. Still, officials at ACORN say their survey's results echo those of similar studies by the Federal Reserve Bank of Boston, the U.S. Department of Housing and Urban Development and others. "The banking industry should be embracing this and trying to change the system rather than dismiss the facts, because there are problems," Eller said. While the overall U.S. homeownership rate stands at an all-time high of 68 percent, minorities still lag far behind. About 72 percent of all whites own their homes, while only 48 percent of blacks and 47 percent of Latinos own. Asians own homes at a rate of about 54 percent, according to 2001 U.S. Census data. Of the metropolitan areas examined by ACORN, San Francisco had the second- largest gap between the black share of conventional purchase loans and the black share of the population. That is, African Americans made up 5.3 percent of the population in the three counties, but received only 0.99 percent of all conventional purchase loans in 2002, compared with 1.04 percent in 2001 the report stated. In San Jose, ACORN found: African Americans were 2.4 times as likely to be rejected as white applicants, up 20.6 percent from 2001. Latinos were turned down 2.3 times more often than whites, a 1.3 percent increase from 2001 and a 14 percent increase from 1997. Asians were 1.3 times more likely to be denied than whites, down from 1.4 times in 2001 but up from 1.0 times in 1997. -- Upper-income African Americans, Latinos and Asians were rejected 3.1 times, 2.6 times and 1.4 times, respectively, more often than whites (the San Jose metropolitan area is defined as Santa Clara County). -- Asians and Pacific Islanders received about 29.5 percent of conventional home purchase loans in San Jose, more than the 26 percent of their share of the population. In Oakland: -- African Americans were denied home loans 2.8 times more often than whites, up 7 percent from 2001 and up 8.7 percent from 1997. -- Latinos were rejected 1.9 times more often than whites, up 5.6 percent from 2001 and up 3.8 percent from 1997. -- Asians were denied 1.3 times more often than whites, down from 1.4 times in 2001 and up from 1.28 times in 1997. -- Upper-income blacks, Latinos and Asians were denied 3 times, 2.3 times and 1.5 times, respectively, more often than upper-income whites (Oakland metropolitan area includes Alameda and Contra Costa counties). On a nationwide basis, ACORN reported that subprime loans made up 26.4 percent and 20 percent of the loans made to African Americans and Latinos, respectively, compared with 7.5 percent of the loans made to whites. The percentage of subprime loans made to minorities has been climbing steadily since 1993. That is of increasing concern to groups like ACORN because some subprime loans, which often carry higher interest rates, points and other fees, can financially stretch people who may already have poor credit scores. "In our experience, people walk into Wells (Fargo) or Citibank and the company says, 'We can't work with you right now,' " ACORN's Eller said. "Then, (the borrowers) get a letter in the mail that says, 'Sign this at the bottom and you have $20,000 credit at a rate of 8 percent.' What they don't know is that after a few months, it goes up to 15 percent." ACORN's report recommended federal regulators issue a moratorium on bank mergers among institutions that have spotty records on lending to minorities, that Congress pass strong anti-predatory lending practices legislation and increase funding for counseling programs designed to educate low-income and minority consumers about unfair lending practices. Mortgage titan Freddie Mac in 2001 launched a program called "Credit Smart" that aims to help minorities understand the importance of good credit, manage money, establish and maintain their credit scores and anticipate what lenders expect when considering a loan. Freddie Mac spokesman Brad German said it is too early to know whether the free classes have had any impact. However, he said, the program recently expanded from five centers in the Southeastern United States to scores of college campuses, nonprofits and churches nationwide, including a program at California State University at Fullerton. Mortgage industry insiders such as Haller at Wells Fargo expect such programs to help close the gaps between white and minority approval rates. However, he noted that for some lenders, change comes slowly. "The industry realizes the importance of providing homeownership to every segment of the market. But it's still a paradigm shift for a lot of lenders right now," he said in an interview. Indeed, the picture is already improving for minority borrowers, USC's Bostic said. However, he contends much work is still needed. "There isn't the same sort of wholesale discrimination going on," Bostic said in an interview. "At the same time (these numbers) don't exonerate lenders either. These markets have some differences that may not be due to economic considerations and they need to be aware of that."
