NCUA Publishes Research Note on Mortgage Lending Disparities to Credit Union Members of Color
ALEXANDRIA, Va. (Nov. 2, 2022) – Federally insured credit unions must be “all in” on diversity, equity, and inclusion and their commitment to these principles should be reflected in the results of credit union lending and performance, National Credit Union Administration Chairman Todd M. Harper said today at the 2022 DEI & ACCESS Summit.
“If we want to achieve the full potential of the credit union system and live up to its statutory mission, then all credit unions must do more to lend in a safe, fair, affordable manner,” Chairman Harper said. “These collective efforts through strategic action will not only advance diversity, equity, and inclusion for people of color applying for and getting a mortgage, but they will also create new revenue and attract new members for credit unions that embrace this opportunity.”
Chairman Harper additionally discussed the disparities in mortgage lending to credit union members of color and highlighted the critical role of fair lending oversight. He also underscored the key role minority depository institutions play in ensuring the extension of safe, fair, and affordable credit to these underserved communities.
Harper’s remarks included a discussion of the NCUA’s Office of Chief Economist Research Note (opens new window), which evaluates credit union lending in 2020 and 2021. Using data for credit union 30-year, fixed-rate loans, the research concludes that, after controlling for a number of credit risk and other factors, many minority credit union borrowers faced higher loan denial rates, and Black and Hispanic credit union borrowers paid higher interest rates than White borrowers.
“The differences we see in lending to minority credit union members are concerning and need to be addressed,” Harper said. “Credit unions can — and must — do better, as an industry, to live up to the system’s statutory mission of meeting the credit and savings needs of members, especially those of modest means, and especially when armed with information on the industry’s current performance shortcomings. In this instance, knowledge is definitely power.”
The Research Note follows a working paper (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) published earlier this year by the Federal Deposit Insurance Corporation (FDIC) Center for Financial Research on how mortgage lending outcomes for minority and White borrowers may differ. The NCUA’s Office of the Chief Economist worked closely with the FDIC and the paper’s author to apply the FDIC statistical analysis to credit union loans, using 2020 and 2021 Home Mortgage Disclosure Act (HMDA) data.
In addition to finding that minority borrowers were more likely to be denied their credit union loan applications, the NCUA’s research showed:
- When minority borrowers did obtain credit union loans, pricing for many was more expensive.
- 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.
- The 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 8 and 13 basis points, respectively.
- For credit union mortgage applications by Black, Hispanic, and Asian members, the estimated denial likelihood was up to two times greater than for non-minority applicants.
- HMDA data indicate that about 20 to 30 percent of credit union mortgage loans were extended to minority credit union members during 2020 and 2021, which is a somewhat lower proportion than for other loan originators.
Harper also addressed the issues of appraisal bias, fair lending examinations, and the NCUA’s Credit Union Diversity Self-Assessment and ACCESS initiative during his remarks.
The NCUA’s 2022 DEI & ACCESS Summit is a hybrid event taking place November 2–4 that is bringing together professionals from credit unions and other stakeholders to promote the value proposition of diversity, equity, and inclusion for the credit union industry; share DEI and financial inclusion best practices; develop solutions to industry-specific challenges; and network with one another. The theme of this year’s summit is All-In on DEI & ACCESS. ACCESS represents the NCUA’s initiative for Advancing Communities through Credit, Education, Stability, and Support.