KOHL, FEINGOLD, MOORE CALL ON FEDERAL RESERVE TO INVESTIGATE RACIAL DISPARITIES IN HOMELOANS
Today, Senators Herb Kohl and Russ Feingold, and Representative Gwen Moore, sent a letter to Federal Reserve Chairman Ben Bernanke to investigate lending standards and practices to minorities by financial institutions in the state of Wisconsin. A recent report by the National Community Reinvestment Coalition concluded that the Milwaukee-Waukesha-West Allis region in the state has the largest overall racial disparities in lending in the nation. The result is many low- and middle-income borrowers receive high cost loans, which contributes to the 115 percent increase in foreclosures in the region over the last three years.
The text of the letter follows below.
August 18, 2008
Board of Governors of the Federal Reserve
Dear Chairman Bernanke,
Last year we wrote to you to urge the Federal Reserve to investigate racial disparities in lending practices in the state of Wisconsin. Unfortunately, now we are faced with an even worse situation in the state of Wisconsin, particularly in the City of Milwaukee and the surrounding region. The National Community Reinvestment Coalition recently released a report analyzing the most recent Home Mortgage Disclosure Act data for metropolitan areas across the country. The report concluded that the Milwaukee-Waukesha- West Allis region has the largest overall racial disparities in lending in the nation. Both low and middle income families and moderate and upper income minority borrowers were more likely to receive a high cost loan or subprime loan than their white counterparts. Specifically, according to the report, 70 percent of low and middle income borrowers in that region received high cost loans. In addition, in the southeastern part of Wisconsin, which encompasses the Milwaukee-Waukesha area, foreclosures have risen by 115 percent over the past three years. This is partially due to the increased use of high cost loans in the region.
While we believe the Federal Reserve's new rules on high-cost loans will help better protect home buyers in the future from predatory lending practices and give them more affordable and sustainable homeownership options, it still leaves many minorities at risk for being steered into high-cost loans. One concern is that reputable financial institutions are leaving minorities and low-income consumers underserved, which often results in the use of non-traditional financial service companies.
We would ask the Federal Reserve and the other appropriate regulators to review lending standards and practices to minorities by financial institutions in the state of Wisconsin and report their findings to our staff. More specifically, we also encourage the Federal Reserve, FDIC, the OCC and OTS to examine how financial institutions in the state are complying with the Community Reinvestment Act requirements and the geographic distribution of loans within the Milwaukee-Waukesha-West Allis area in Wisconsin.
We appreciate you looking into this important issue for the state of Wisconsin.