When the American Civil Liberties Union filed a complaint against PHH US Mortgage Corp. last week, it raised a key question: what is the extent of mortgage company's responsibility to promote fair housing?

The filing has stirred debate over whether discrimination occurs only after an application has been made or whether a lender has an obligation to seek out minority applicants.

According to the ACLU, Mount Laurel, N.J.-based PHH is at fault under both standards. The advocacy group charges that PHH, which does almost all its business through affinity groups and direct marketing, does not solicit applications from African-Americans, and turns down minority applicants twice as often as white ones.

But mortgage industry lawyers say the ACLU's complaint doesn't hold water.

"A well-grounded claim would have to include documentation of a specific act that excludes minorities," said Larry Platt, an attorney with Kirkpatrick & Lockhart in Washington who represents lenders in discrimination cases. The ACLU's complaint relies on Home Mortgage Disclosure act statistics, which "don't prove a thing," Mr. Platt said.

In a written defense, PHH stated that it turned away significantly fewer African-Americans for Philadelphia-area home loans than other lenders in the area.

The company also said that applicants approached by telemarketing are not required to provide race information, and more than a third of its Philadelphia applicants did not do so in 1994 and 1995.

The ACLU argues that PHH takes in virtually no applications from neighborhoods with high minority concentrations, and should be actively soliciting minority organizations. "One question has to be raised," said Christopher Hansen, senior staff attorney with the ACLU. "Are they doing business with all white organizations? If you know you are fostering discrimination, you have to do something about it."

Mr. Platt argues, however, that "the ACLU is looking at disparities in applications, but there is no claim that when an application is received, the lender did anything improper."

Because PHH garners most of its loans through affiliations with banks, affinity groups, and corporations, and has no branch representation, it should not be held liable for the mix of applications it receives, he said.

"That's like saying that the owner of a women's clothing store should sell men's clothes. The company has a niche. Does that mean that in order to achieve a social purpose, you have to sell men's and women's clothes?" he said.

For example, he said, if a mortgage lender was considering an affiliation with the American Medical Association, should it turn that business down because "there are more majority than minority members in the organization?"

For the ACLU to have a case, Mr. Platt said, it would have to prove that PHH actively solicited only white organizations to do business with, and avoided those with high minority concentrations.

Daniel Edelman, a Chicago-based lawyer who specializes in class actions against mortgage lenders, disagrees. The ACLU's complaint against PHH reminds him of employment discrimination cases, he said. "It's like obtaining all of your referrals for new employees from existing employees," he said. "That practice has been found to be inappropriate."

Mortgage lenders, he said, have a responsibility to know the demographics of the groups they are soliciting. "At some point if your methods of doing business generate 99% white applicants, at some point it will be inferred that that's your intent."

The ACLU's complaint is especially valid, Mr. Edelman said, because PHH is a nationwide lender, and not a bank in a small town in Iowa.

"If you're doing business through mail and phone," he added, "you ought to have a proportion consistent with minority homeownership."

The complaint recalls action that the Department of Justice took two years ago against Maryland's Chevy Chase Savings Bank. The department accused the thrift of marketing its products exclusively in white neighborhoods. Chevy Chase responded by opening new branches in predominantly minority neighborhoods. But the solution for an affinity lender is not so simple.

PHH, which captured 2.40% of the market for white applications in Philadelphia last year, but only 0.90% of the African-American market, has taken some steps in the past year to improve its minority lending record.

An alliance forged with Freddie Mac in March will link the lender with churches and housing organizations across the country, and is expected to bring in minority borrowers.

The ACLU's case may serve as an impetus for the mortgage industry to research ways to bring underserved markets into the mainstream, said Paul Mondor, director of regulatory compliance for the Mortgage Bankers Association.

Fair-housing laws, he adds, only state that credit can not be denied based on race, not that lenders are required to solicit applications from all races.

Unlike mortgage banks, mortgage companies have not been forced to comply with Community Reinvestment Act requirements, which put pressure on banks to open offices and extend home loans and other credit in underserved neighborhoods.

The ACLU says it is looking more for fair practices than for high cash settlements. "We won't sue anyone if they show improvement," Mr. Hansen said.

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