The Clinton administration's emphasis on lender compliance with fair housing laws is neither an empty campaign promise nor a spring wind that will soon diminish.
The emphasis has created a shift in congressional and public sentiment in favor of strong enforcement of existing laws and support for stronger laws in Congress that tried-and-true methods of lobbying will not deflect.
The consumer lobby, after years in the wilderness, has developed the upper hand. And, like other groups that have operated On the fringes, it has learned its lessons well, getting to know the right people as well as how the levers of power operate.
Of greater concern to mortgage lenders. these diverse groups have developed a united strategy that is using Clinton administration advocates of fair lending, such as new comptroller of the Currency Eugene A. Ludwig, as a lever to force more conservative agencies, such as the Federal Reserve Board and the Federal Deposit Insurance Corp., to get on the bandwagon. The Federal Trade Commission and the Department of Justice, both of which have compliance with fair lending laws as a responsibility, are also likely to be prodded to get more involved.
Moreover, the question is being raised as to whether emphasis on fair lending will take away from the primary role of regulators, supervising institutions and facilitating profitability.
For lenders, the implications are obvious. Examinations will be pervasive and the use of "testers" to evaluate lender compliance with fair housing and credit laws, rejected by banking agencies as distasteful and to some extent unfair, will be expanded. That means that compliance with rules and laws should be a priority of management. And it also means that an institution doesn't want to be the first to be caught. Witness what happened to the Bank of Boston in the mild-1980s when compliance with money laundering laws became the priority of the U.S. government.
On Tuesday, for example, the Department of Housing and Urban Development announced that the agency and the Office of the Comptroller of the Currency were entering into a joint effort to use testers to evaluate lender compliance with fair housing and credit laws. Ludwig said Wednesday that in developing the pilot program. the two agencies would consult with HUD, community groups, bank regulators and the Department of Justice to develop an appropriate program.
Ludwig calls gaining lender compliance with fair housing and credit laws "my first goal" as comptroller, adding that Treasury Secretary Lloyd Bentsen, his boss, is "solidly behind me." Ludwig said his reasoning "is that discrimination is not only morally repugnant, it is also destructive."
He noted that the OCC has "fallen short" of its responsibility of enforcing compliance with fair housing and credit laws by banks. To improve measurement of compliance, testers will be used to determine if loan applicants get equal treatment. Bank examiners, armed with new guidelines, will scrutinize bank and bank subsidiary records, Ludwig said.
At the same time, new measurements are being developed.
Ludwig said OCC officials are developing a statistical model to help examiners measure bank and bank subsidiary compliance. The model will be used to assist the agency in identifying the bank loan files examiners should look at to ensure compliance; to assist the agency in targeting banks for fair housing and credit examinations; and to assist the agency in finding institutions that are giving disparate treatment to customers based on race, gender or other factors.
He called the HUD-OCC pilot program on testing "the perfect combination of interest and expertise," and said the agencies will share techniques, data and other information to ensure compliance.
The fact that the Senate Banking Committee and a subcommittee of the House Banking Committee were simultaneously holding hearings Wednesday on legislative proposals on different aspects of mortgage lending was not coincidental but illustrative of the new environment.