Humphrey School News—August 20, 2015

New Report from Humphrey School Professor Identifies Significant Discrimination in Home Mortgage and Small Business Lending

MINNEAPOLIS, MN (8/20/15)—A new study conducted by Dr. Samuel Myers Jr., professor at the University of Minnesota’s Humphrey School of Public Affairs and chair of the Roy Wilkins Center for Human Relations and Social Justice, and a team of University of Minnesota and The New School for Social Research (New York) researchers identifies significant discrimination in home mortgage and small business lending practices. 

The study, presented today to the Minneapolis City Council, was conducted with support from the Center for Urban and Regional Analysis (CURA), Jewish Community Action, and the Minneapolis Foundation, and "examines how the Twin Cities' 50 largest banks apply their practices in the region with a specific focus on minority access to the credit market." The report grades individual lenders on four key components of their performance: a) racial disparities in mortgage lending; b) small business lending to low-income and moderate income communities; c) discriminatory lending patterns; and d) foreclosures and banking services.

“The surprising result is that some of the largest and most prominent local lenders in the Twin Cities area received low overall grades while some of the large market participants without offices in Minnesota had impressive scores,” says Dr. Myers.

The research was done in response to the adoption of the Responsible Banking Ordinance by the cities of Minneapolis and St. Paul in 2013 and 2014, respectively. The objectives of this ordinance are to disclose important data about the lending and other services of those banks where city deposits are held, and to develop goals for improving access to banking services in communities.

The findings are based on descriptive and regression analyses of banking practices using 2008-2013 Home Mortgage Disclosure Act data (HMDA) and Community Reinvestment Act data (CRA), alongside a survey of the top 50 financial institutions doing business in the metropolitan area.

Vic Rosenthal, executive director of Jewish Community Action says, “It is our hope that with the documentation of the discriminatory practices, community residents, city officials, and banks can work together to develop goals for improving access to lending, an essential step for building wealth in many Minneapolis and St. Paul communities.”

Conclusions from the report suggest that racial discrimination is present in the Twin Cities lending market, and recovering from the crisis will require major financial institutions to look at their efforts to serve minority communities. 

“Though the report reveals deeply disappointing truths, we’re committed to problem solving with banks and the City on this issue, in addition to maintaining our grassroots organizing in support of a win-win-win approach,” says Jermaine Toney of the Economics Department at the New School for Social Research, one of the co-authors of the report. 

The team is expecting the City of St. Paul to hold a similar hearing in the coming months to further explore the findings of this report. Additional presentations are planned to further explore the next steps for the community and city to improve banking services.

Read the full report, including related data, HERE.

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