Before allowing two California thrifts to merge, the Office of Thrift Supervision recently imposed tough conditions designed to improve the combined institution's compliance with Community Reinvestment Act and Home Mortgage Disclosure Act rules.

The April 20 OTS order requires Glendale Federal Bank to improve its record of mortgage lending to minorities and low- and moderate-income borrowers.

Glendale, a unit of Golden State Bancorp., also must submit quarterly progress reports to the agency. Those updates would become part of the thrift's public CRA file, an unusual requirement that would allow watchdog groups to closely monitor its progress.

"It's clearly a public rebuke," said Warren Traiger, principal at the New York law firm Butler, Fitzgerald & Potter. "I think these conditions are extraordinary."

"It sends a message to all the S&Ls ... that they cannot coast," said Robert Gnaizda, general counsel to the Greenlining Institute, a San Francisco-based advocacy group. "They actually have to make efforts to reach the underserved minority market."

But Glendale chairman Stephen J. Trafton downplayed the order, saying the thrift had already agreed to take steps to increase minority lending.

"From our perspective, they are nothing more than business as usual," he said in prepared statement.

The merger involved Golden State's purchase of Pasadena-based Cenfed Financial Corp. Subsequently, Cal Fed Bancorp., which owns California Federal Bank, San Francisco, announced plans to buy Golden State.

The OTS order gives Glendale 30 days to:

*Submit a plan to increase lending to minorities and low-income borrowers. The percentage of these loans on Glendale's books should match the percentage of these loans made by local competitors, the agency said.

*Review the accuracy of Home Mortgage Disclosure Act data and correct any errors found.

*Provide technical assistance and credit management training to low- income and minority small-business owners

A protest letter from Greenlining drew the regulator's attention to Glendale's problems. The group requested that the OTS place conditions on the merger approval, rather than reject it.

An OTS spokesman declined to comment on the order.

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