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April 4, 2005 -- updated April 18, 2005, see below, and see “First HMDA Fallout - Activists Hit Citi, B of A,” by Hannah Bergman, American Banker, April 5, 2005, Pg. 1; “U.S. community group alleges Citigroup, Bank of America discriminate in mortgage lending,” by Eileen Alt Powell, Associated Press, April 4, 2005; "Groups Make Hay of HMDA Data," National Mortgage News, April 11, 2005, Pg. 2

            Inner City Press and Fair Finance Watch have reviewed the 2004 Home Mortgage Disclosure Act data of Citigroup and certain other lenders, including the new information concerning which loans are subject to a rate spread (3% higher than comparable Treasuries on a first lien, and 5% on a subordinated lien), and have found the following:

            At Citigroup for home purchase loans, African Americans borrowers are more than four times more likely to receive a rate spread loan than white borrowers.

            Meanwhile, Citigroup denied the applications of African Americans for home purchase loans 2.6 times more frequently than those of whites.

            Citigroup’s rate spread disparity for Hispanics was even worse: for home purchase loans, Hispanic borrowers are 6.48 more than six times more likely to receive a rate spread loan from Citigroup than are non-Hispanic white borrowers.

            This disparate treatment by Citigroup of people of color seeking to own their homes is decidedly more pronounced, and more troubling, than for example National City Corporation’s two-to-one disparity reported in the Wall Street Journal of March 30, 2005. National City apparently presented its data in the light most favorable to it, leading to the summary conclusion that African Americans are 2.21 times more likely to receive rate spread loans than whites at National City, and Hispanics 1.26 more likely. See, “Blacks Are Found to Pay High Rates for Home Loans,” WSJ of 3/30/05, D2 (and see below).

            Inner City Press’ analysis of Bank of America, N.A.’s 2004 lending record (based on the 805,181 applications reported) finds similar rate spread disparities at Bank of America.  For home purchase loans, Hispanics  are 1.39 times more likely to receive rate spread loans than non-Hispanic whites; non-Hispanic Blacks are 2.20 times more likely to receive rate spread loans than non-Hispanics whites at Bank of America. FN 1: Beyond mortgage lending, in which Bank of America has de-emphasized subprime lending since closing its NationsCredit unit, Bank of America is a major funder of payday lenders including Advance America Cash Advance and others. Likewise National City acknowledged, in response to earlier ICP comments to the Federal Reserve, that it lends to major payday lenders like Check n 'Go, “Check into Cash of Cleveland, Tenn[essee and] Ace Cash Express of Dallas.” See, e.g., Crain’s Cleveland Business of May 17, 2004, reporting that “groups, led nationally by the nonprofit Inner City Press/Fair Finance Watch of New York City, contend that the nation's large commercial banks are enabling this type of predatory, or subprime, lending through loan agreements such as those involving National City.” Additionally, Bank of America in 2004 denied home purchase loan applications from Hispanics 2.104 times more frequently than from whites, and denied applications from non-Hispanic Blacks 2.063 times more frequently than non-Hispanic whites.

            These over two-to-one disparities are troubling -- but they cast Citigroup’s four-to-one targeting disparity for African Americans, and over six-to-one disparity for Hispanics seeking home purchase loans in starker contrast.  The nation’s largest bank may also be its most disparate, when it come to confining people of color to higher-cost home purchase loans.

            Inner City Press requested numerous other large lenders’ data on February 28 and March 1 (such that is was due on March 31), with an eye to including it in this first comparative study of the new HMDA data. But several large lenders flouted the deadline. J.P. Morgan Chase and Wachovia did not provide their data on time; Wells Fargo and AIG provided their data on the last permissible day, but in a format (PDF) in which it could not be analyzed.  Likewise HSBC / Household provided data in less than useful formats. Fair Finance Watch has now filed complaints on these and other banks with the federal regulators; these and other lenders, including such subprime lenders as Ameriquest, New Century, Option One, Countrywide, Homeowners Loan Corp., Delta Funding and Greenpoint. The last of these is owned by North Fork Bank, which for its prime rate loans in 2004 denied African Americans 2.34 times more frequently. [FN: North Fork’s Greenpoint unit provided its 2004 data in, of all thing, Microsoft Word format, making comparison within this prime-and-subprime conglomerate impossible at this point. FFW is preparing a complaint to North Fork’s regulator, the FDIC and New York Banking Department, and will cumulate and analyze Greenpoint’s data with North Fork’s, upon receipt.]

            Inner City Press has also reviewed the 2004 lending of controversy-plagued Riggs Bank, N.A., and has now commented to the three regulatory agencies considering PNC’s take-over proposal that Riggs in 2004 denied the applications of African Americans 7.52 times more frequently than those of whites (while denying the applications of Hispanics 4.81 times more frequently than whites).  Beyond its money-laundering for Augusto Pinochet and the dictator of Equatorial Guinea, this striking under-service to communities of color in and around the District of Columbia militates for the public hearings Fair Finance Watch has requested on PNC-Riggs.

            Similarly, that the largest bank in the U.S. is targeting its higher cost home purchase loans at African Americans and Hispanics (over four and six times more frequently that at whites, respectively) is directly relevant to current proposals in the U.S. Congress to preempt state anti-predatory lending laws, and to shield major players in the subprime lending field from liability.  Fair Finance Watch is calling initially for public hearings of these findings, for guidance from the regulatory agencies to lenders, first directing them to provide their data without delay or obfuscation, and second directing them to revise all marketing, lending and pricing practices that have led to these disparate patterns.   

Methodology and Scope of Review

            ICP Fair Finance Watch reviewed Citigroup’s 1,218,401 loan mortgage loan applications records for 2004. Bank of America, N.A. reported 805,181 loan application records; National City Corp. reported 877,981 records.

            For home purchase loans, comparing all applicants identified as White and Black (without regard to Hispanic or other ethnic status), Blacks were 4.336 times more likely to receive rate spread loans from Citigroup than whites. Hispanics / Latinos were 6.36 more likely to receive rate spread loans from Citigroup than whites (and 6.48 times more likely than non-Hispanic whites).

            ICP’s review has identified a loophole in the Federal Reserve’s rate spread reporting system of which Citigroup is availing itself: while rate spread is defined as three percentage points over comparable Treasury securities for first liens, and five percentage points over Treasuries for all subordinated liens, Citigroup makes an exempt category of not-secured home improvement loans. Citigroup’s reasoning for reporting unsecured loans in its mortgage lending data is not known; FFW notes that Citigroup made more of these unsecured home improvement loans to Hispanics than to whites, while for both first lien and subordinate lien secured home improvement loans, Citigroup made more loans to whites than Hispanics. No matter how high the interest rates on these loan, they do not show up using the rate spread filter, because they fit neither into the first lien / three percent or subordinate lien / five percent over Treasuries definition.  ICP / FFW intends to pursue this issue with Citigroup, including at its annual meeting on April 19, and with the Federal Reserve, which in an applications proceeding on Citigroup’s proposal to acquire First American Bank, challenged by ICP, ruled last month that it does not expect Citigroup to significantly expand in the foreseeable future, given the range of compliance problems. This is another... For further information, click here to contact us.

Note: The March 30 Wall Street Journal article makes clear that National City selectively pre-released its data to that publication. ICP wrote to National City on March 30 demanding an explanation of the bank's policy for responding to requests for data, and citing the HMDA regulation, which require provision of the data by March 31 for all requests submitted on March 1 (or before, as ICP's was). National City faxed a response: "As I am sure you are aware, 2004 HMDA information has generated a significant amount of interest and numerous data requests. Data requests are being filled in the order they are received... [Y]our request... required more time to prepare."

Even if this were true, once National City had the data on a compact disk, it could have provided it to others beyond the Wall Street Journal. National City’s game-playing, however, is outdone by Synovus Financial Corp., which wrote that “we previously provided the information requested in paper format because the electronic version of the Synovus LARs includes non-public information that we can not provide to you.” ICP's complaint letter to the Federal Reserve states: If we take this response at face value, we have grave concerns about the technological / IT sophistication of this insured depository institution, which should be able to modify an electronic LAR."

Update of April 11, 2005: Citigroup’s response to ICP’s analysis of its mortgage data, in which ICP as Citigroup had suggested looked at particular mortgage lending products, beginning with home purchase loans, was to call the conclusion “reckless.” This ad hominem response was delivered by CitiFinancial’s ex-journalist spokesman, to the publication he used to work for; then it was repeated to the Associated Press. See, “Group Alleges Bank Discrimination,” AP of April 4, 2004.  For a bank which has been subject to prosecution and de-licensing for both predatory lending and money laundering to characterize as “reckless” the analysis of data, using methods the bank itself suggested, is laughable.

    Bank of America’s response to ICP’s analysis of its 2004 mortgage data was in fact a non-response. “Julie Davis, a spokeswoman for B of A, said she could not comment directly on the study. However, she said, ‘We are looking at the data to make sure we are meeting the needs of borrowers. We're confident that any pricing differences are the result of legitimate risk and credit factors.’” See, American Banker of April 5, 2005.  We note that Bank of America, N.A. imposed rate spreads on Hispanics 2.538 times more frequently than on whites, higher than most of its peers.

            Citigroup's March 2005 memo about its then-still-withheld data said, in the second paragraph, "As a result of these efforts, the homeownership rate in the United States hit a stunning 69% last year... efforts to expand credit, particularly through the use of risk-based pricing, have contributed to these incredible gains in homeownership."

            That's why it's more than legitimate (and not "reckless") to look specifically at risk based pricing for homeownership loans. A separate methodological issue it that we'd resist including home improvement loans in the analysis since Citigroup's home improvement loans include a slew of non-secured loans for which they don't report whether the loans are rate spread or not -- including these would skew any analysis.

            Substantively, even as ICP analyzes other banks’ data as it arrives, Citigroup continues to stand out. For example while at Wells Fargo for home purchase loans, African Americans borrowers are 3.9 times more like to receive a rate spread loan that white borrowers, this is still less disparate than Citigroup, at which African Americans borrowers are 4.34 times more like to receive a higher-cost rate spread home purchase loan that white borrowers. Meanwhile, Wells Fargo denies the applications of African Americans for home purchase loans 2.3 times more frequently than those of whites, nearly as disparate as Citigroup’s 2.6 to one denial rate ratio between African Americans and whites.

            Perhaps rather than spend its staff time on spin, and then insults, Citigroup ought to focus on improving its performance, including fair lending performance. Paraphrasing “Don’t move, improve,” the message / lesson to Citigroup is “Don’t schmooze, improve.” We’ll see.

Update of April 17, 2005: In a new low, Citigroup on April 13 informed ICP that the data Citigroup had given it on March 31 was incomplete and incorrect. Based on that data, provided by Citigroup the full month after ICP’s request, ICP conducted an analysis and found for example that for home purchase loans at Citigroup in 2004, African Americans were 4.34 times more likely to receive higher-cost rate spread loans than whites. Citigroup’s spokesman, asked to respond by the Associated Press and the American Banker newspaper, called ICP’s findings, and its director, “reckless,” and claimed that the data showed otherwise. See, e.g.,“U.S. community group alleges Citigroup, Bank of America discriminate in mortgage lending,” by Eileen Alt Powell, Associated Press, April 4, 2005; “First HMDA Fallout - Activists Hit Citi, B of A,” by Hannah Bergman, American Banker, April 5, 2005, Pg. 1; and "Groups Make Hay of HMDA Data," National Mortgage News, April 11, 2005, Pg. 2.

            On April 14, ICP received from Citigroup new compact disks and repeated its analysis.  The number of originated loans and mortgage records have remained the same – 351, 811 loans and 1,218,402 records.  But the number of the loans that are higher-cost rate spread loans  has increased from 11,000 in the first, incorrect CD, to fully 93,103 rate spread loans in the second set of data. That is to say, the data Citigroup provided on March 31 underreported its 2004 higher-cost loans by 82,103 rate spread loans. Based on the new data, fully 26.46 percent of Citigroup’s originated loans in 2004 were higher-cost rate spread loans.

            Based on the new data, for home purchase loans at Citigroup in 2004, African Americans were 3.88 times more likely to receive higher-cost rate spread loans than whites.   While this is slightly lower than the disparity, 4.34 to one, in ICP’s first study based on the data Citigroup provided, it is still much higher than for example the lenders reviewed above. Strangely, the Wall Street Journal’s April 11 report, based on Citigroup’s self-generated percentages, had Citigroup appearing less disparate than nearly all other lenders. (HSBC was not included in the Wall Street Journal’s report, despite making more rate spread loans in 2004 than either Citigroup or Wells Fargo).

            While ICP’s analysis of Citigroup’s second, ostensibly correct batch of data is continuing, ICP stands by its finding, that the disparities by race in high-cost lending at Citigroup are worse than at its peers. 

     Citigroup had more than a month to prepare, but released data that undercounted its high cost loans by a power of seven. The new data makes Citigroup look even worse and more disparate, and makes it all the more important that the Federal Reserve stick to and firm up its March 2004 ruling that Citigroup should not significantly expand until it fixes its compliance woes. Citigroup’s problems include systemic racial disparities and predatory lending.

Agencies' March 31, 2005 Q&A about the new HMDA data- click here

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         FFW researches, documents and advocates around financial firms' activities, and how they affect local communities. FFW files its findings with tribunals, regulatory agencies, and elsewhere, including on this Web site . Click here to view analyses of several multinational financial institutions' effects on consumers.  Click here for an ongoing report on the campaign to reform anti-money laundering, tax havens, and bank secrecy laws.   Click here for the Human Rights Enforcement project, including its new criminal justice and local human rights project. For or with more information, contact us.

For More information, see:
Human Rights & Finance: Predatory Lending in a Deregulated Network Economy  and the ICP book, "Predatory Bender"

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