The chairman of the Federal Home Loan Mortgage Corp. wants bank and thrift regulators to deploy "testers" to root out racial bias in mortgage lending.
Leland C. Brendsel appears to be the first senior mortgage official to advocate use of the controversial procedure by regulators. Other mortgage industry leaders have spoken in favor of self-testing to weed out discrimination.
In testing, white and minority individuals pose as loan applicants with similar economic backgrounds and visit the same loan offices. The sponsor of the tests then compares the treatment of the applicants for signs of bias.
Stronger Medicine
"I believe that testing, rather than merely imposing goals, should be an approach taken by regulators," Mr. Brendsel told mortgage lenders at a recent industry conference.
In an interview, the secondary-market executive expanded on his reasoning.
"To get to the bottom of discrimination, you've got to use direct means, and one of those is testing," Mr. Brendsel said.
Last year, the Federal Reserve Board explicitly ruled out testing on grounds that it would be unreliable, too costly, and ethically questionable.
Fed Chairman Alan Greenspan even said that testing could put the central bank in a position of "sponsoring deception."
But Mr. Brendsel's advocacy of the method, given his stature in the mortgage industry, may well rekindle debate among regulators about its merits, said Ronald Wienk, a senior researcher at the Washington-based Urban Institute.
Trade Group's Proposal
Two months ago, the Mortgage Bankers Association of America took what many viewed as a bold step by recommending that lenders send testers into their own loan offices. But the mortgage group stopped short of advocating testing sponsored by regulators.
"I don't think it's for us to say whether regulators should or shouldn't," said Warren Lasko, the association's executive vice president. "If they do it, they do it."
The Department of Housing and Urban Development, for its part, has come out in favor of testing, and is currently preparing a pilot program.
The Federal National Mortgage Association, Freddie Mac's chief rival, believes that testing can be a very effective way to detect discrimination, said spokesman David Jeffers. But he echoed Mr. Lasko by adding: "It's not up to us to say what a regulator should or shouldn't do."
