NCUA Chairman Todd M. Harper Opening Remarks at the NCUA’s 2022 DEI & ACCESS Summit

As Prepared for Delivery on November 2, 2022

Good morning, everyone. And thank you, Miguel, for that warm welcome. And thank you to everyone joining us today, both in-person and online.

I would also like to thank the many members of the NCUA team, who have contributed to planning and coordinating this industry-wide summit on diversity, equity, and inclusion. Those many individuals include our teams in the Office of Minority and Women Inclusion, the Office of the Chief Economist, the Office of the Credit Union Resources and Expansion, the Office of Consumer Financial Protection, the Office of External Affairs and Communications, and the Office of the Executive Director, among others.

Their efforts behind the scenes, their dedication, and their remarkable attention to detail will make this third NCUA Diversity, Equity, and Inclusion Summit a success for all who participate. We have an ambitious agenda ahead of us for the next two-and-a-half days, with multiple speakers, panels, and presentations.

So, as we get under way today, I also want to extend my gratitude to the many panelists, presenters, and speakers, as well as my fellow NCUA Board members, for their contributions. In that regard, I want to recognize Board Member Rodney Hood for his vision for convening the NCUA’s first DEI Summit in 2019.

It’s his vision that continues to guide and shape this conference. For example, because of Board Member Hood’s interest, we have incorporated into this summit presentations, discussions, and material related to the NCUA’s ACCESS initiative, which stands for Advancing Communities through Credit, Education, Stability, and Support. ACCESS and DEI complement one another. That’s because through ACCESS, the NCUA is seeking to both foster financial inclusion and address the financial disparities experienced by minority, underserved, and unbanked populations. So, I am pleased that we are focused on ACCESS and DEI at this summit.

And, since our first summit three years ago, the credit union industry has steadily improved its DEI commitment and performance. In that regard, yesterday the NCUA released the industry-wide 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 percent over the prior year. And credit unions completing the self-assessment in 2021 were much more likely than three years earlier to demonstrate a leadership commitment diversity and inclusion. We’ve also had a jump in the number of credit unions reporting the implementation of employment practices that expand outreach efforts to diverse individuals.

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. And, as the credit union industry continues along the path of its diversity, equity, and inclusion journey, it will need to focus on ensuring that the products, processes, and services offered to members are safe, fair, and affordable.

That’s why I first want to raise with you today some important issues related to mortgage lending and appraisal bias, before returning to the topics of the Diversity Self-Assessment, and then discussing the demographics of credit union leadership.

Lyrical Inspiration

As a 1980s music fan, I’ve often found that some once popular songs have taken on unexpected and deeper meanings as I’ve grown older, and, hopefully, wiser. Said another way, coming face to face with the realities of adult responsibility and the hardships in the world has provided me a new lens to appreciate the intent behind certain lyrics.

Take, for example, a hit song by Bruce Hornsby and the Range, entitled “The Way It Is.” Released in September 1986 — the very month that I began college — the song left a lasting impression on me. If you listen closely, that song’s lyrics touch on the issues of racial segregation, socio-economic inequalities, and the civil rights movement. The song also movingly depicts the wide gulf between the haves and the have-nots, and perhaps, most significantly, between intent and action. The refrain, which gives the song its name, has undertones of resignation, complacency, and accepting the status quo. “That’s just the way it is. Some things will never change.”

In other words, that song underscores that it’s often easier to settle for the current ways of doing business, which is, after all, the path of least resistance.

A Rigged System

But, 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. And, it’s why the statutory mission of the U.S. credit union system is to meet the credit and savings needs of their members, especially those of modest means. At their core, credit unions were established to provide access to safe, fair, and affordable financial services to people of modest means and the underserved. The credit union movement’s reason for existence is to identify people in need and to help them achieve financial security, financial stability, and financial freedom.

Why is that? Well, it’s because even when the first credit union in the United States started more than a century ago, those visionaries saw a financial system that was essentially rigged against them. And it’s why thousands of more like them, including my father and grandfather, each decided to start credit unions over the many years that have followed. To borrow the insights of my friend, Cathie Mahon, the President and CEO of Inclusiv, historical disparities in access to capital and the delivery of financial products and services were institutionalized by design, not by circumstance or coincidence. And, that resulted in certain communities being left out of sight and out of mind, while others enjoyed a disproportionate share of the benefits that come with financial freedom.

Unfortunately, despite the progress made over many decades, those financial disparities remain for some. And, as we witness now, the pandemic has only exacerbated and widened these economic inequities for certain segments of our population.¹

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.

The research, which used HMDA data on 30-year, fixed-rate mortgages, analyzed relative denial rates and differences for different demographic groupings in the mortgage market in various pricing measures, including interest rates, loan costs, discount points, and lender credits.

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. 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.

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. 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. 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.

So, what does that disparity actually look like for a Black or Hispanic family searching for a new home? Let’s say that family took out a $200,000, 30-year, fixed-rate loan in 2021 to purchase the house of their dreams. Each basis point equals about $390 in additional payments over the life of the loan. As a result, for a Hispanic family who got a loan at a 13-basis-point premium, the total mortgage payments over 30 years would be more than $5,000 higher than for a White family.² For perspective, that’s roughly what an American family spent, on average, on meals at home for all of 2021.³

Moreover, the HMDA data indicate that about 20 to 30 percent 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. NCUA’s full research note on mortgage outcomes for minority credit union borrowers was released earlier this morning, and I invite you to read it for additional insights.

Now, it is worth noting that some of the differences in mortgage lending may be attributable to factors other than discrimination. For instance, in the case of the lower share of mortgages going to minority borrowers, credit unions must work within their fields of membership, which may vary in demographic composition, including minority representation.

That said, the demographic limits of a credit union’s field of membership only highlight the critical role that 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 to these historically underserved populations. 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.⁴

Nevertheless, the differences we see in lending to minority credit union members are concerning and need to be addressed. So, this research should inform your credit union’s fair lending compliance efforts. And, as I will highlight later, this research should also inform the NCUA’s own fair lending examination and review efforts.

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. 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.

Appraisal Bias

The problems we see in credit union lending to people of color are also present in the determination of the home values for minority families.

Appraisal bias is a longstanding injustice that has made recent headlines. A New York Times article from earlier this year described how a home that had been “whitewashed” to remove any trace of its Black owners was appraised for almost $300,000 more than the original estimate.⁵ A 2021 Freddie Mac study of 12 million appraisals also found that homes in Black and Latino neighborhoods were valued lower than similar properties within White communities.⁶

Homeownership is the primary way for families to build wealth to pass on to their children and grandchildren. Yet, appraisal bias, especially when compounded with higher mortgage denial rates and higher rates for approved mortgages for Blacks and Hispanics, decreases the ability of families to build intergenerational wealth.

To help address this problem, the NCUA joined the Property Appraisal and Valuation Equity, or PAVE, Task Force, an interagency initiative to study and reverse the undervaluing of properties due to racial or ethnic bias. Technology offers us one solution to the problem of appraisal bias. That’s why the NCUA is working with other agencies on joint rules to establish quality control standards for automated valuation models. And, as a member of the Federal Financial Institutions Examination Council, the NCUA is also 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. 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.

Fair Lending Exams

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. These efforts will better protect consumers’ interests, ensure the credit union industry adheres to its commitment to serve all members, including those of modest means, and provide a more comparable level of fair lending oversight as federal banking regulators.

The NCUA completed only 68 fair lending examinations and reviews in 2021, which represents just over two percent 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. 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. At present, for example, NCUA’s fair lending program largely focuses on mortgage lending data to identify candidates for examinations and reviews. Yet, we know there are many other types of credit union lending, including new and used auto loans, credit cards, and private student loans. Going forward, NCUA’s fair lending program should consider more than HMDA data when identifying which credit unions to examine and review. With more resources dedicated to fair lending oversight and better methods for determining fair lending risks, we can better ensure that credit union members of all races and ethnicities are fairly treated.

CUDSA and Quantum Governance Statistics

So given this reality check, where does this leave the credit union industry? The answer is, with an opportunity. Credit unions have a chance to take a good, hard look at where they stand on diversity, equity, and inclusion, and learn where they can be better.

And, that’s why I continue to strongly encourage all credit unions to participate annually in the NCUA’s Credit Union Diversity Self-Assessment. The self-assessment is voluntary, but if your credit union is serious about DEI, I encourage you to jump on every opportunity to assess the measures put in place and benchmark them against peer institutions. I’ve often said that if you don’t measure something, you can’t manage something. The same is true for a credit union’s DEI efforts. In this instance, knowledge is definitely power. The self-assessment is one way for your credit union to benchmark, track performance, and measure improvement.

Your credit union should have received an email early last month with a personalized link to the 2022 Diversity Self-Assessment. But, in case you need it, you can access the self-assessment online at www.NCUA.gov/CUDSA. The official submission period to be included in the 2022 report will end on January 31, 2023.

For this iteration, the NCUA has made several improvements to enhance security, ensure data integrity, and improve the overall user experience. And, we are currently considering other changes to the process, including whether to contract with a third party to administer the self-assessment.

Since the 2016 rollout of the Diversity Self-Assessment, more than 400 credit unions have used the tool to evaluate their diversity and inclusion efforts. While there has been a steady increase in submissions each year, the total participation over the last six years represents less than one in ten credit unions as of December 31, 2021.⁷ Clearly, there is room for continued improvement when it comes to the Diversity Self-Assessment response rate.

As a kid, I went to Benjamin Franklin Elementary School. So, I’ve long appreciated Franklin’s witty insights. In that regard, he has a spot-on observation when it comes to the Diversity Self-Assessment: “Well done is better than well said.” For the credit union system to be truly “all-in” on DEI and ACCESS — the theme of this very summit — we need more credit unions to complete and submit the annual survey. In doing so, the credit union system will be practicing what it preaches when it comes to diversity, equity, and inclusion. And, if you need any more motivation, we know that the self-assessment is changing performance.

Let me illustrate with a story. In meeting with a billion-dollar credit union before the pandemic, I shared the NCUA’s self-assessment tool. Afterwards, an executive from that very same credit union told me that merely looking through the items in the survey “shifted” his thinking. He added that the survey was a “great chance to do a little good in the world.”

Think about that: Merely looking at the survey changed someone’s thinking. Imagine what the Diversity Self-Assessment can do if your credit union completes the survey year after year and then uses that information to establish objectives and achieve results. If your credit union already completes and submits the voluntary self-assessment to the NCUA, thank you! But, you also can help us in another way. We urge you to spread the word to other credit unions to do the same. It helps us all if we have as complete a picture of the industry as possible.

However, even with limited participation, the 2021 Credit Union Diversity Self-Assessment numbers provide some real insights. Only six in ten responding credit unions reported a leadership and organizational commitment to diversity. Just over half noted taking steps to implement employment practices that demonstrated that commitment. And, less than a third of the reporting credit unions monitored and assessed their diversity practices.⁸

From the analysis of workforce data submitted in 2021, we also know that Blacks and Hispanics remain underrepresented in the leadership of credit unions.⁹ And, research recently conducted by Quantum Governance confirmed this troubling state of underrepresentation on credit union boards. Participants reported having an average of 34 percent female directors on their boards. That’s only one out of every three board members. Yet, we know that there are slightly more women than men in the United States. So, we should strive to achieve parity on this metric.

The Quantum Governance survey participants also indicated that fewer than one of every six credit union board members is non-white. Yet, according to the U.S. Census, approximately one in four Americans is a person of color. 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. That’s why the NCUA in recent years has focused its resources on “financial inclusion” — as Board Member Hood likes to say — through the ACCESS initiative, which I highlighted earlier in my remarks.

Call to Action

And so, in sum, we all know the business case for diversity, equity, and inclusion. It is simple, it is clear, and it is compelling. Organizations that embrace these principles have higher workforce engagement, retention, and productivity.

In other words, the more diverse and inclusive an organization is, the higher its performance. A Deloitte study released a couple years ago had some eye-popping numbers in this regard. Organizations with inclusive cultures are two times more likely to meet or exceed financial targets, three times more likely to be high performing, six times more likely to be agile and innovative, and eight times more likely to have better overall business outcomes.¹⁰

That said, diversity, equity, and inclusion are both a business and a moral imperative. To be sure, inertia is a powerful force that can stand in the way of growth and advancement. But, returning to Bruce Hornsby’s hit, “The Way It Is,” offers us a way forward. The refrain, in fact, ends on a note of hope and a call to action. “That’s just the way it is. (Ah,) but don’t you believe them.”

These lyrics are as relevant today as they were more than a generation ago. For many people in underserved places and part of underserved populations, including communities of color, credit unions need to be a partner in building wealth and achieving the American dream of owning a home and building a better future for their children.

For those of modest means, it often comes down to the question, “What other choice do I have?” That conundrum begs the question we need to ask ourselves, “What other choice do we have but to do better on their behalf?” We’ve made important strides that we should recognize and commend. But, there’s still much more we can do.

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.

Maya Angelou, the poet, makes this same point in a much better way. She said, “Do the best you can until you know better.  Then when you know better, do better.” This pearl of wisdom aptly describes the crossroads the credit union system finds itself at, and how we must take the initiative to advance diversity, equity, and inclusion. What is more, our efforts to achieve the full promise of DEI within the credit union system will expand access to safe, fair, and affordable financial products and services not only to people who are Black, Brown, White, and every shade in between, but also to all the colors of the rainbow of the LGBTQ+ community.

Closing

Again, thank you all for participating in this year’s diversity, equity, and inclusion summit.

I promise you that I am “all-in” for DEI and ACCESS. And, whether you are here today in-person or online, I bet that you, too, are “all-in” for your credit union.

I look forward to seeing many of you at this afternoon’s panel on supporting LGBTQ+ employees through active allyship, and to chatting with you during breaks throughout this summit. Thank you.

With that, let me turn the floor over to the NCUA’s Chief Economist, Andy Leventis, for his presentation on the state of the economy and the research note on credit union mortgage lending released earlier today.

Take it away, Andy.