Truth in Business and Home Lending Discrimination

With respect to discrimination in relation to residential mortgage lending, it was concluded that, while HMDA data and studies based on this data provide evidence of disparities between racial and ethnic groups in the approval of home mortgage loans, such evidence does not support conclusively charges of racial discrimination in home mortgage lending.  Nevertheless, as a very minimum, these studies indicate a strong potential for and an appearance of the existence of such discrimination.

Becker’s theoretical approach to the issue of discrimination in lending against racial minorities appears to be nothing more than an apology for the practice.  Becker appears to ignore the facts of the situation.  Babbie’s conflict theory has some appeal; however, it does not provide a complete explanation.  The view of accommodation within the context of the race relations cycle, while not providing a perfect explanation of the practice, does appear to provide a better explanation than either of the other theories.

With respect to discrimination in business lending, a conclusion was drawn that racial and ethnic bias does explain some of the outcomes of SBA lending practices.  Racial and ethnic bias, however, was not the only factor involved in different outcomes.  Thus, it can be concluded that the SBA is making an honest effort to improve access to financing for minority group applicants.

The findings that the SBA may be making an honest effort in the Los Angeles area to extend business credit in the absence of discriminatory practices, however, must be qualified on two counts.  First, the SBA, as an agency of the federal government, may be expected to be more sensitive to racial and ethnic discrimination than are many private sector lenders and than the SBA itself may be under the control of an administration less favorable to minority rights.

Second, the data for the analysis, the results of which were presented in this chapter, was drawn from the Los Angeles metropolitan area.  Lending practices in the Los Angeles metropolitan area reasonably may be expected to be more sensitive to racial and ethnic discrimination that may be true in some other areas of the United States, whether the entity approving or extending loans is either affiliated with the federal government or is in the private sector of the economy.

These two qualifications do not compromise the findings of the research.  These two qualifications, however, do serve as a caution against an indiscriminate generalization of the findings reported in this chapter to all lending agencies, regardless of geographic location in the United States, and to all private sector lenders in the country.