Access To The Dream:
Mortgage Lending in Texas

Written by the Consumers Union Southwest Regional Office.
on behalf of the Texas Community Reinvestment Coalition
This report is available in PDF Format

Executive Summary

The American Dream may mean home ownership, but the reality in Texas indicates otherwise. Statewide, lenders continue to deny loans to Black and Hispanic applicants at higher rates than they deny loans to White applicants. This is also true at the city level. The highest disparities appear in Abilene, Austin, San Angelo, Lubbock and Victoria.

In May 1994, the Texas Community Reinvestment Coalition (TCRC), a statewide association of community-based groups and housing advocates concerned with lending discrimination, released a study documenting disparities in home mortgage lending in Texas. At the request of TCRC, Consumers Union again examines the lending market in Texas based on 1996 Home Mortgage Disclosure Act (HMDA) data.

While HMDA data does not include the applicant's credit history, debt or assets, it does indicate that individual companies address the distinctions they find among applicants very differently - some lenders find a market where others do not.

Though disparities in denial rates between minority and non-minority borrowers are high, analysis at the individual city level shows that certain lenders have started to lend in low income and minority census tracts. But more of them consistently show little application or loan activity in these tracts, compared to their market share elsewhere.

Further, our analysis also shows a growing fragmentation of the home loan market into disparate segments: the manufactured housing loan market; the new home loan market with its builder affiliated lenders; and the upper income home market. The new home lenders do not offer loans in many low income and minority areas, largely because they specialize in suburban development. Many banks and major mortgage companies show a strong tendency to compete for this same market. If trends continue, many low income and minority borrowers may find that a loan from a manufactured home lender is the only loan available - one that may be much more costly than a conventional loan.

Texas lacks a sustained, statewide effort to target investment by lending institutions in underserved communities. TCRC makes the following recommendations:

• Policymakers should address the growing problem of independent mortgage companies failing to fairly serve lower income and minority communities' home finance needs, require Texas banks and savings and loans to offer low cost checking accounts to low income families, and fully fund the state's Office of Access to Financial Services to ensure policymakers have comprehensive information about home lending in Texas.
  
• Regulators should ensure that "satisfactory" or "outstanding" ratings given to financial institutions accurately reflect the activity of lenders in Texas communities, hold regular meetings with residents and community groups and tour the neighborhoods within a bank's service area to assess the performance of banks, and develop better methods of recording and investigating consumer complaints of unfair lending.
  
• Lenders should increase outreach and marketing efforts to low-income and minority communities, implement innovative programs to expand fair home loans in low-income and minority areas, and conduct fair lending training and testing for bank employees involved in the mortgage loan process.
  
• Consumers should file written complaints with the appropriate regulatory agency if discrimination or unfair treatment by a lender is suspected and fully understand the terms for a home-mortgage loan before accepting one.

TCRC encourages consumers, regulators, policymakers, and financial institutions to work more cooperatively to create community reinvestment initiatives that are fair, effective, and sustained to guarantee that all people seeking home ownership have a fair and realistic opportunity to obtain it.