KNOXVILLE, Tenn. — Black-owned banks reject home loans for blacks at twice the rate of conventional banks, a University of Tennessee study shows.
Dr. Harold Black and Dr. Cary Collins, UT-Knoxville finance professors, looked at 627 applications from 32 black-owned banks and 2,163 at 49 white-owned banks, comparing banks that had similar size, location and other factors.
The study used federal guidelines, based on formation and continuing ownership, for defining minority- or white-owned banks. It found that white-owned banks rejected 9.4 percent of white applicants and 16.7 percent of black; black-owned banks rejected 13.8 percent of white borrowers and 38.4 percent of black.
UT researchers attributed the results to economic factors rather than racial discrimination.
The statistics could be read to suggest that black-owned banks discriminate against other blacks, but there are other reasons for the disparity, Black said.
Black banks have a much higher percentage of black clients in areas where people have poor credit, he said. They also are not as financially strong as white banks and have to be more careful in their lending practices, so they are going to have higher rejection rates.
A report on the study was published recently in the Journal of Financial Services Research.
Black said black-owned banks also rely more on selling mortgages to other agencies, so they often must abide by more stringent second-mortgage rules.
The criteria for (second mortage) loans are set by the agencies that buy the mortgages rather than the banks themselves,Black said. Those rejection rates typically are higher than those on conventional mortgages.
White-owned banks tend to be stronger financially, so they are able to hold most of their mortgages as securities rather than sell them, Black said.
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Contact: Dr. Harold Black (423-974-1721) or Dr. Cary Collins (423-974-1715)