As more banking companies add subprime mortgage lending units, pressure is rising for a stronger regulatory response to alleged predatory lending in poor minority communities.

A report this month by the General Accounting Office, commissioned by Reps. Bernard Sanders, I-Vt., and Maxine Waters, D-Calif., noted that predatory lending issues were raised by activists in five of six bank mergers studied. The GAO called for better coordination of fair-lending laws, which are not evenly applied to banking companies and their subsidiaries.

At issue is what the Woodstock Institute, a nonprofit that promotes economic development in low-income and minority communities, found to be an "extreme segmentation" in the home loan market. In a study released this week on the Chicago market for home equity loans and refinancings, the institute argued that regulators have failed to adjust for the increased presence of banks' unregulated subsidiaries in minority and low-income areas.

The report came on the heels of activists' charges that Citigroup's subprime lending units, which operate in minority communities, tended to charge higher rates than its banking unit, Citibank, does in more affluent white communities.

The Woodstock report, "Two Steps Back" by Daniel Immergluck and Marty Wiles, found that among the top 20 lenders in loan refinance applications in African-American tracts, 18 were subprime firms. In white tracts, 17 of the top 20 lenders were prime lenders.

The Woodstock study also found marketing disparities: Banks, thrifts, and bank-owned mortgage companies had a major presence in white areas, while mortgage companies -- some of them nonbank firms affiliated with banks -- dominated black areas.

The report noted that the segmentation goes beyond the issue of higher loan rates in minority communities. "More highly regulated" banks and thrifts are cross-selling account and investment products, while the mortgage and consumer finance companies treat lending to lower-income and minority communities as "an isolated line of business, in which the focus is on the short-term transaction and associated fees," the report said.

Similar patterns can be found in many cities, including New York, said Matthew Lee, executive director of Inner City Press/Community on the Move in New York.

"In some instances you have the same bank holding company playing both sides of the fence," with the prime unit making loans to mostly white borrowers and the subprime unit focused on minority borrowers, Mr. Lee said.

"There is very little oversight of these subprime lenders that have become the main lenders in minority communities," he said. Borrowers can easily find themselves isolated and vulnerable, but simple safeguards forcing companies to offer borrowers a prime loan if they were eligible for one would prevent a lot of the predatory practices, he said. "If they're referring people down, they should be referring people up," he said.

Additional regulation would help, Mr. Lee said, arguing that the Federal Reserve Board should step in as a regulator in cases where bank holding companies are involved -- a case also made by the GAO report.

Minority and low-income census tracts provide golden opportunities for banks to fulfill their Community Reinvestment Act responsibilities, but Mr. Lee said that "most banks with a subprime affiliate don't ask for CRA credit for the subprime affiliate's loans, mostly because they don't want the oversight that would come with it."

Indeed, Money Store's Illinois operation, one of the subprime lenders mentioned in the study, is not subject to the same CRA regulations as its parent, First Union, though the unit is subject to the same fair-lending regulations, a spokesman said. The loans purchased by Equicredit Corp of America, Bank of America's subprime unit, are likewise not submitted as part of Bank of America's CRA lending initiatives, a spokesman said.

The Woodstock study noted that the Federal Trade Commission has fewer than 40 people on staff to cover predatory lending and other consumer credit problems nationwide.

"We have made predatory lending an enforcement priority," said David Medine, associate director for financial practices at the FTC. Fair-lending cases are "difficult to investigate and prove because of the nature of the abusive practices taking place."

Ellen Seidman, director of the Office of Thrift Supervision, said regulators were studying the interaction between depository institutions and their mortgage banking subsidiaries. The majority of abuses, she said, are committed by entities that have no relationship with depository institutions and therefore are regulated only at the state level, if at all.

But she agreed with Mr. Lee that it is critical to insure that "referral up is as common a process as referral down," so that consumers can be fairly matched with a loan.

"Depository institutions are regulated in one way and mortgage bankers, mortgage brokers, and other folks who are not depository institutions are regulated in a very different way," she said.

In Chicago, three subprime lenders closed the most refinance loans in African-American neighborhoods, the Woodstock study found. Equicredit Corp of America, Bank of America's subprime unit, topped the list, followed by Money Store, part of First Union National Bank, and New Century Mortgage Corp.

"Equicredit doesn't originate loans and thus doesn't market specifically to customers," a spokesman for Bank of America said. The unit buys loans from mortgage brokers, with purchase decisions "based solely on credit history, borrower creditworthiness, and the terms of the transactions," he said.

Equicredit is subject to the same regulation Bank of America faces, he said, adding that the bank is "an industry leader in equitable fair-lending practices in all of our businesses."

Money Store is aiming for pricing that is "consistent across all the channels based on the consumer's credit rating," a spokesman said, noting that First Union is completing a "product pricing realignment," that should be completed by the end of the first quarter next year.

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