ALEXANDRIA, Va.—NCUA Chairman Todd Harper kicked off the agency’s 2022 DEI & ACCESS Summit with words of concern over how minority Americans are being treated in the mortgage market, and not just by banks, saying an agency analysis has found credit unions also have higher denial rates for minority applicants.
NCUA released research on the issue on the first day of the meeting, a link to which can be found below.
Harper also addressed fair lending-related issued and the composition of CU boards during his remarks.
“The differences we see in lending to minority credit union members are concerning and need to be addressed,” he told attendees at the meeting, which is being held both in-person and virtually over two and a half-days.
The chairman also shared concerns for the racial and gender makeup of credit union boards, saying change needs to happen.
The good news, Harper said, is that since NCUA’s first DEI Summit three years ago, the credit union community has steadily improved its DEI commitment and performance.
“In that regard, yesterday the NCUA released the industrywide results of the 2021 Credit Union Diversity Self-Assessment. In all, 240 credit unions submitted self-assessments last year. That’s an increase of 28% over the prior year,” he said.
The agency has also had an increase in the number of credit unions reporting the implementation of employment practices that expand outreach efforts to diverse individuals, Harper noted.
‘Room to Improve’
“But we also know that credit unions, as a whole, have much room to improve their supplier diversity programs and to make their diversity and inclusion practices more transparent,” he said.
Harper quickly turned to his concerns over credit union mortgage lending to minorities.
“I want to raise with you today some important issues related to mortgage lending and appraisal bias,” Harper said. “The credit union movement should understand — better than almost any other provider in the financial services sector — about the need to build a financial system that serves everyone’s needs, not just a few people or selected groups. That’s because the credit union movement was born from a mission to serve those who would otherwise likely be forgotten or left behind by traditional financial institutions.”
Unfortunately, despite progress made over many decades, those financial disparities remain for some, Harper said.
“As we witness now, the pandemic has only exacerbated and widened these economic inequities for certain segments of our population,” he continued. “Disparities in lending research by regulators and academics provides ample evidence of the struggles of some racial and ethnic groups to obtain access to safe, fair, and affordable financial services. Earlier this year, for example, the Federal Deposit Insurance Corporation’s Center for Financial Research published a working paper stating that, after controlling for a number of credit risk and other factors, minority borrowers in 2020 faced higher mortgage loan denial rates, and Black and Hispanic borrowers paid higher interest rates than White borrowers.
“After the release of the FDIC’s Center for Financial Research working paper, I asked Andy Leventis and his team in the NCUA’s Office of the Chief Economist to work closely with the FDIC and the paper’s author to apply the same analysis to credit union loans, specifically,” explained Harper. “Ultimately, the office’s statistical analysis using HMDA data for both 2020 and 2021 produced broadly similar results for credit unions. After controlling for a number of credit risk and other factors, our economists found that, all things equal, Black, Hispanic, and Asian credit union members were more likely to be rejected in their mortgage loan applications to credit unions.”
Two Times More Likely to be Denied
In fact, credit union members in some racial groups who sought to get a mortgage in 2020 and 2021 were up to two times more likely to be denied, he added.
“A Black credit union member, for example, seeking to refinance her conventional mortgage in 2020 was estimated to be 1.94 times more likely to be rejected than a White borrower. Our economists also found that when Black and Hispanic credit union members did obtain loans, pricing for many was more expensive,” Harper said. “Among credit union members able to obtain purchase-money mortgages from HMDA-filing credit unions and credit union service organizations in 2020, Hispanic and Black borrowers were estimated to have paid interest rates that were about 10 basis points higher than White borrowers.”
Analysis of the 2021 HMDA data produced similar findings, with an average excess interest rate for Hispanic and Black credit union members ranging between about eight and 13 basis points, respectively.
“The HMDA data indicate that about 20% to 30% of credit union mortgage loans were extended to minorities during 2020 and 2021, which is a lower proportion than for other HMDA-filing loan originators,” said Harper.
NCUA’s full research note on mortgage outcomes for minority credit union can be accessed here.
FOM Creates Limits
Harper said the demographic limits of a credit union’s field of membership only highlight the “critical role” minority depository institutions and credit unions with either a community charter or a multiple common-bond charter incorporating underserved areas have in serving communities of color to ensure the extension of safe, fair, and affordable credit.
“And, it further emphasizes the need to amend the Federal Credit Union Act to allow all federal credit union charter types to add underserved areas,” Harper said.
Harper added that NCUA is working with other financial regulators to develop examination principles that consider how appraisal bias impacts safety and soundness and consumer financial protection.
“Additionally, through its seat on the Appraisal Subcommittee, which oversees state appraiser and appraisal management company regulatory programs, the NCUA is working to support efforts to diversify the appraisal industry,” said Harper. “Along with the lending inequities I outlined earlier, appraisal bias further underscores that many people of color continue to face uniquely challenging barriers to homeownership. With the deck stacked against underserved communities, including minority populations, credit union policies and practices that promote financial inclusion are very important. That’s why the NCUA must continue to enhance its fair lending program as part of ongoing efforts to strengthen the agency’s consumer financial protection oversight.”
Limited Participation
Harper pointed out NCUA completed only 68 fair lending examinations and reviews in 2021, which represents just over 2% of all federal credit unions.
“And yet, at the end of 2021, the NCUA had identified 64,000 credit union members subjected to potentially discriminatory practices,” said Harper. “The NCUA has worked with the credit unions involved to provide restitution and remediation, where appropriate. And, because we need to do more, the NCUA board increased the resources committed to fair lending in 2022. With these additional resources, the NCUA is currently on track to complete 80 fair lending examinations and reviews this year. As we consider the NCUA’s 2023 budget, we should continue to build out fair lending efforts with more staff and risk-focused refinements.”
CU Board Composition
Turning his attention to the makeup of credit union boards, Harper shared concerns here, as well.
Harper said that through analysis of workforce data submitted in 2021, the agency knows that Blacks and Hispanics remain underrepresented in the leadership of credit unions.
“And, research recently conducted by Quantum Governance, confirmed this troubling state of underrepresentation on credit union boards,” he said. “Participants reported having an average of 34% female directors on their boards. That’s only one out of every three board members.
“According to the U.S. Census, approximately one in four Americans is a person of color,” continued Harper. “So, the credit union system is falling short when it comes to matching the overall population proportions for the number of women and people of color serving on credit union boards. If change starts at the top, then we have a lot of work to do to close this gap, and merely talking the talk of diversity, equity, and inclusion won’t be enough to achieve change. Instead, we need deliberate actions by all to chart a new course for the future of credit union boards.”
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