Data on Bias in Lending Spark Demands for Action

WASHINGTON - Lawmakers and community groups reacted swiftly and harshly Monday after the Federal Reserve formally released data suggesting that banks discriminate against minority homebuyers.

House Banking Committee Chairman Henry B. Gonzales asked top regulators for an "immediate" report on what their agencies plan to do "to correct the lending problems revealed."

The Texas Democrat pledged to hold hearings on the industry's mortgage lending practices.

Deposits Welcome

Maude Hurd, president of the activist group called Acorn, said, "It's a simple story: If you're a minority, our nation's banks want only your deposits, not your loan applications."

Her group called for an immediate moratorium on merger applications from banks until regulators can investigate compliance with laws designed to prevent lending discrimination.

But one member of the Federal Reserve Board warned Monday against drawing conclusions from the mortgage data. "I'm not prepared to say that there is discrimination going on," said the official, John LaWare.

The Fed study found that in 1990, mortgage applications from blacks were denied 2.4 times more frequently than those from whites with similar backgrounds - 33.9% to 14.4%.

Minority applications were rejected more than three times as often in Philadelphia, Minneapolis, Chicago, and Boston.

LaWare Wants More Data

Mr. LaWare told a crowded press conference that more information was needed to conclude there was bias, but he admitted that the figures are "very worrisome."

The Fed does plan to target rejection rates for special, indepth compliance exams, he said, without naming the banks.

The Fed's study, whose key findings were revealed two weeks ago at the American Bankers Association's annual convention, analyzed data supplied by 9,281 institutions under a 1989 amendment to the Home Mortgage Disclosure Act.

The provision, part of the thrift-bailout law, required banks to report how many mortgage applications were approved and denied and to detail the borrowers' race, sex, and income.

Mounds of Paper

The data total 1.2 million pages, or a stack as tall as the Washington Monument, Mr. LaWare said.

Banks must make the data available at their lead institution on request. The information will also be available at many public libraries.

In addition to individual reports, the Fed has national and regional aggregates.

Besides supplying ammunition to community activists, the information will also enable rival institutions to compare lending performance and to evaluate the effectiveness of loan marketing or community outreach campaigns.

The reports will show a bank whether its competitors are making more mortgages in their markets as well as where these loans are being made. A bank can discover the income levels of its competitors' borrowers.

Leading industry groups, such as the American Bankers Association, have maintained that the Fed data do not take into account information crucial to credit decisions, such as a loan applicant's credit history, other debts, or employment.

The Fed echoed the industry.

"These simple summary statistics, though revealing, do not take into account the financial circumstances of the applicants that make up the various racial or ethnic groups," the Fed warned.

Mortgage Lenders Act

The Mortgage Bankers Association of America announced Monday that it is forming a task force to examine federal data suggesting racial discrimination in mortgage lending.

The task force will be headed by Howard Levine, president of Bank of New York's mortgage unit. The remaining eight members also are senior executives at major mortgage companies. While the panel has yet to set a timetable, members vowed to move swiftly.

"We need some immediate response" to the Fed data, said Williard Gourley, vice chairman of the U.S. mortgage unit of Barclays Bank PLC. "We need to get on with our work."

In refuting the idea of intentional discrimination, he and others pointed out that mortgage lenders crave originations volume. "You make a loan to anyone who comes in the door who qualifies," Mr. Gourley said.

But in a speech to the Massachusetts Community and Banking Council, Rep. Joseph P. Kennedy, D-Mass., said: "You don't need a degree from data analysis school to know that the poor and minorities are not receiving their fair share of credit."

Mr. Gonzalez charged that regulators "have failed to vigorously enforce" fair lending, fair housing, and community investment regulations. In a letter to President Bush on Monday, Mr. Gonzalez urged that an executive order requiring regulators to fully enforce these laws be issued.

"Unfortunately, it appears that financial institutions and their regulators, rather than moving for immediate corrective action, will once again expend great energy to explain away the data," Mr. Gonzalez wrote.

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