Bank of America and Wachovia made more home-purchase mortgages to Hispanic and African American borrowers last year, but they continued to deny their loan applications more often than whites, an Observer analysis of loan data found.
Both banks also reported more high-rate loans in 2006, although these mortgages remained a small part of their portfolios. The subprime mortgage business -- higher-rate loans generally to borrowers with spotty credit -- has suffered a flood of defaults in recent months, causing worries about bad loans for banks and investors and struggles for borrowers trying to keep their homes.
Lenders are required to provide data on their mortgage lending every year to the federal government, providing a snapshot of who they're making loans to, who they're denying and whether those loans carry a higher interest rate.
However, data reported under the Home Mortgage Disclosure Act, or HMDA, doesn't include key information such as borrowers' credit scores. Advocates have pushed for this information to be included, but the financial services industry has resisted the idea.
Regulators will disclose 2006 numbers for all lenders next month, but the Observer analyzed data from Bank of America and Wachovia by requesting the information directly from the Charlotte banks.
Bank of America was the nation's No. 4 home-purchase mortgage lender by dollar volume in 2005, according to the latest data from the Mortgage Bankers Association. Wachovia was No. 7, when counting last year's acquisition of Golden West Financial.
Both banks said they increased lending to minorities through active outreach programs that include partnerships with community groups and financial counseling. They also said they follow all applicable laws and don't base lending decisions on race, ethnicity or gender.
Last week, a House subcommittee led by Charlotte Democrat Mel Watt held a hearing that probed potential instances of discrimination in the mortgage industry.
A 2005 Observer series that examined records of the nation's 25 largest lenders found that blacks were four times more likely than whites to get high-rate loans. At the hearing, the Justice Department said it was investigating several possible instances of discriminatory lending, but didn't disclose details.
Here is a look at Bank of America and Wachovia's latest numbers in three key areas. The Observer analyzed conventional, one-to-four family, owner-occupied home-purchase loans.
Loans to minorities
Bank of America in 2006 made about 63 percent of its 199,646 home-purchase loans to whites, compared to 13 percent to Hispanics and 8 percent to blacks. Loans to Hispanics climbed 33 percent from 2005, while loans to black borrowers were up even more -- 62 percent.
Wachovia in 2006 made 63 percent of its 88,234 home-purchase loans to whites, compared to 14 percent to Hispanics and 8 percent to blacks. Loans to Hispanics jumped 90 percent from 2005 as the bank gained new California territory by buying Golden West. Loans to blacks were up 42 percent.
Overall in 2005, whites accounted for 64 percent of home-purchase loans, while Hispanics received 11 percent of the loans and blacks received 7 percent, according to the latest data from the Federal Reserve. They were the top three demographic groups in terms of total loans and the focus of the Observer analysis.
Adam Rust, research director at the Community Reinvestment Association of North Carolina, said it was encouraging to see Bank of America and Wachovia making more loans to minorities. Banks, in general, are more likely to issue loans with better rates and lower fees than mortgage brokers and finance companies that specialize in high-rate loans, he said.
"The best means of gauging their social performance is to see more lending in absolute numbers by these institutions to low-income, low-wealth and minority borrowers," he said.
Annual disclosure of lending data under HMDA has pressured lenders to do a better job in serving minority communities, said Matthew Lee, executive director of Inner City Press/Fair Finance Watch, a New York-based watchdog group. While the banks have shown improvement, he regularly protests their merger applications with the Federal Reserve Board, pointing to discrepancies in lending records.
"It's still unacceptable," he said.
Bank of America in 2006 denied loans to Hispanics 11 percent of the time, compared to 10 percent for blacks and 7 percent for whites.
Bank of America said the mortgage data provided to the government does not provide enough details to draw conclusions about why a loan was declined. "Anytime you see differences in (mortgage) data, what it doesn't explain is the risk and credit criteria behind it," said Glenda Gabriel, Bank of America's neighborhood lending executive.
Wachovia denied loans to blacks 20 percent of the time in 2006, compared to 17 percent for Hispanics and 10 percent for whites. Worsley said the bank has a comprehensive program to ensure fairness of its mortgage lending.
A Federal Reserve Board study of all lender data in 2005 found blacks were denied 28 percent of the time, compared to 21 percent for Hispanics and 12 percent for whites.
About 2.3 percent of Bank of America's home-purchase loans in 2006 carried an interest rate that exceeded a benchmark set by regulators -- an interest rate that was roughly in the 8 percent range or higher last year. Blacks received these loans 1.64 times more often than whites, while Hispanics received them just slightly more often than whites.
Overall, the Federal Reserve found about 25 percent of home-purchase loans carried a high rate in 2005, the latest data available.
Gabriel said Bank of America isn't in the business of making subprime loans but said there can be some variations based on risk and credit factors. The interest-rate environment can also produce more higher-rate loans, she said.
About 9 percent of Wachovia's loans in 2006 carried a higher interest rate. Blacks received these loans 2.21 times more often than whites, while Hispanics received them 1.61 times more often.
Worsley said high-rate loans increased in 2006 because of an unusual interest rate environment: Short-term rates were similar to long-term rates, causing more loans to exceed the federal benchmark. The bank has closed subsidiaries that focused on making subprime loans.