Wiggling out of one problem can make you look worse. Just ask bankers in Sarasota, Fla. In July 1995, the Sarasota Herald-Tribune was preparing a story that showed racial disparities in home lending. The story was based on Home Mortgage Disclosure Act data from 1993, the most recent available at the time. Several bankers, in interviews before the story was published, insisted their performance in 1994 had improved.
They credited themselves with offering a variety of innovative schemes that effectively loosened mortgage credit to blacks and to minority communities. There was only one problem: It wasn't true. After those early interviews, the Herald-Tribune decided to hold the story. When the 1994 numbers were available, an analysis showed that while blacks saw their approval rate inch up slightly - from 61 percent in 1993 to 62 percent the following year - those gains did not keep pace with other racial groups.
Moreover, while the denial rate for blacks dropped in 1994, these gains were offset by the large numbers of blacks who grew frustrated with the lending process and withdrew their applications, or who had their files closed by the banks for being "incomplete." As a result, while these "new" and "aggressive" schemes lured more blacks to the door, the spike in loan activity only further concentrated housing credit into the hands of whites, doing little to redistribute mortgages along racial lines or to buttress housing values in mixed communities.
The result was a far stronger story, particularly given the demographics of southwest Florida, where a standard analysis of HMDA data along racial lines is complicated by the small number of black and minority applicants. HMDA numbers are problematic enough. Ask anyone who's based a story on them. You can't account for credit histories, or analyze in any quantifiable way the margins between debt and income by an applicant's race.
(This is how lenders typically dismiss the charge of mortgage "redlining" or discrimination.) Here are ways to work around problems with the data: Analyze whether mortgage credit is flowing to minority communities. Using Census data, we analyzed the approval rates, and amount loaned, to areas which were two and three times Sarasota's nonwhite average. As it turned out, large banks generally moved away from mixed neighborhoods, leaving higher-priced mortgage and finance companies to pick up the slack.
Examine the amount of loans made to individual blacks, by income. Are loans to blacks going to those with exclusive incomes, thereby making any claim of racial equalization moot? Compare denials in your area with those from similarly composed counties or metropolitan areas in your state.