ABA Rebuts Bias Charge In Fed Study On Lending

WASHINGTON -- The American Bankers Association launched a preemptive strike Friday against a Federal Reserve study that indicates bankers discriminate against minorities in mortgage lending.

The ABA issued a report contending that the data used by the Fed are not broad enough to draw conclusions about lending bias.

The Fed said its figures show that a minority person is two to four times as likely to be rejected for a mortgage as a white with the same income.

Discussion at Convention

The conclusions of the Fed study were discussed last week at the American Bankers Association convention in San Francisco.

The report -- including 1.2 million pages of data on the lending pattern of individual banks -- will be released next Monday, rather than today as originally planned.

Meanwhile, the Fed urged the partners of the three pending megamergers to release their lending records now so community groups will have more time to study them.

BankAmerica Corp., planning a union with Security Pacific Corp., complied Friday.

The San Francisco-based company said it rejected 39% of the real estate and consumer loan applications it received from blacks and Hispanics last year, compared with 24% of applications from whites. The overall loan denial rate was put at 28%.

The information on rejection rates resulted from a provision of the 1989 thrift bailout law that amended the Home Mortgage Disclosure Act. The measure required banks to report the number of loan applications they receive and reject. The institutions must also disclose each borrower's race, income, sex, address, and loan amount.

Available for First Time

The Fed study marks the first time the information will be made public.

The banking industry is girding itself for fallout from the study and is trumpeting changes being made to increase lending to minorities.

"ABA has efforts under way to help banks analyze their lending patterns and identify new strategies that might help break undesirable patterns," Robert L. Stevens, president of the Bryn Mawr Trust Co., wrote in a letter accompanying the association's report.

Method Is Questioned

The report, written by George Galster, an economics professor at the College of Wooster, states that it is impossible to conclude that a bank is discriminating if only the income of the prospective borrower is disclosed.

It said a borrower might be turned down because he already owes too much or has a track record of defaulting.

"Any test for illegal discrimination in credit decisions that uses no control variables should be dismissed as incomplete, if not condemned outright as an attempt to midlead," Mr. Galster wrote.

Along with its 1.2 million pages of data culled from 6.5 million mortgage applications to 9,000 banks, the Fed is expected to publish an article next week that explains the pitfalls in interpreting the data.

Banks had to have their 1990 lending statistics in to the Fed by March 1. The Fed processed that raw data into reports showing rejection rates for minority loan applicants and then sent a copy of the report to each bank. Those reports went out to most banks in mid-September, according to John Wood, a senior lawyer in the Fed's consumer affairs division.

Special Effort for Some

Under the law, banks have 30 days after receiving the report to make it available to the public.

Mr. Wood said the Fed tried to get reports out early to the megamerger partners: BankAmerica, Security Pacific, Chemical Banking Corp., Manufacturers Hanover Corp., NCNB Corp. and C&S/Sovran Corp.

"With those six banks, we did make an effort to get their data out to the them as fast as possible so the information would be available to evaluate the pending mergers," he said.

Chemical, Manufacturers, NCNB and C&S/Sovran said they have already released some lending data to community groups.

BankAmerica, in a statement Friday, said that the majority of black loan applicants were turned down because they had poor credit histories or insufficient income to repay the loan.

The statement noted that BankAmerica in April announced a 10-year lending goal of $5 billion in community reinvestment loans in California.

The bank unveiled a series of steps Friday that are expected to increase a black or Hispanic applicant's chance of getting a loan.

"Standard credit criteria in the lending industry are, in effect, |color blind,' but we are changing that," Bank of America's statement said. "We are taking steps to be more responsive to race or ethnicity and how it relates to economic circumstances and cultural differences."

The steps are:

* Rejected loan applications from minorities will be passed up along the chain of command for another review.

* A special $30 million fund for minority loans is being created.

* More minority loan officers will be recruited.

* Loan officers will be given financial incentives to make creditworthy loans in lower-income areas.

* An ombudsman will be established to handle appraisal complaints.

* Affirmative marketing programs, including Spanish-language advertising and bilingual services at selected branches, will be developed.

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