Mortgage lenders in Massachusetts reached an agreement in principle Dec. 2 with the state's attorney general in the nation's nastiest batch of lending discrimination cases to date.
Massachusetts, home of the colonial Salem witch hunt, has been a focal point of lending discrimination scrutiny since the Federal Reserve Bank of Boston released its controversial lending discrimination study in 1990.
That study of Home Mortgage Disclosure Act data indicated that mortgage rejection rates for whites remained far below those of blacks and Hispanics, even after researchers ensured that they were comparing applicants with similar credit and employment records.
Under the terms of the recent agreement, a panel of banking experts will independently review 140 denied minority loan applications questioned in the Fed study. If the experts determine that a loan should have been made, the rejected individuals will be awarded $15,000 or their option of a new or refinanced loan.
The panel will include one person named by the attorney general, one named by the Massachusetts Bankers Association and one agreed on by both sides.
"I think it's a very fair and equitable way out of a difficult decision." said James B. Keegan, president and CEO of CambridgePort Savings Bank in Cambridge, Mass.
The controversy surrounding the findings of the Boston Fed's study gave birth to a new imbroglio when the state's attorney general office announced it was going to conduct an investigation into possible discriminatory practices of lenders who provided data for the Fed study. This created a furor-not only among the 132 Boston-area banks that participated in the study and then found themselves the target of a probe--but also at the Boston Fed, which was embarrassed because it had promised participants that the data they volunteered wouldn't be used as grist for prosecution.
One party to the agreement, Shawmut Bank NA, was spumed Nov. 15 by the Federal Reserve Board in an attempt to acquire another New England bank.
The Fed cited Shawmut's unimpressive Community Reinvestment Act record.
The Massachusetts Bankers Association and 10 of these banks responded by taking the state attorney general to court, arguing that, regardless of the merits of the case, the Massachusetts Commission Against Discrimination had jurisdiction over the matter, not Attorney General Scott Harshbarger.
