Mortgage lenders fearful of the lending discrimination crusade that the Departme nt of Justice has been on the last two years may finally have some relief in sight, and HUD, Justi ces enforcement partner, is going to provide it. New regulations to the Fair Housing Act to be drafted by the Department of Housi ng and Urban Development later this year are expected to eliminate many of the surprises mort -gage lenders have been treated to lately courtesy of Justice. Those expected regulations, which are likely to include several contentious issu es raised by Justice during its latest settlement agreements, such as the implementation of the effec ts test, may still be onerous for many lenders, but it will offer some relief in that the fair lending rules will be clearly defined. HUD is addressing the Fair Housing Acts regulatory amendments on two tracks: mor tgage lending and property/casualty insurance redlining. The insurance redlining porti on of the regulatory development is well under way with HUD having issued a notice of prop osed rulemaking in the Aug. 16 Federal Register. The department hasnt staffed teams t o work the mortgage lending issues yet, but some analysts believe an advance notice of prop osed rulemaking may be ready by the end of the year. Once HUD has [issued the regulations], the new rules should stand as applicable law and Justice wont have the latitude to pursue any theory it wants anymore, said Paul Mondor, a regulatory counsel with the Mort-gage Bankers Association. This reg will be a congressional ly authorized statement of the law and a lender will be able to say were in compliance. That w ould definitely change the tilt of the fieldno more sacrificial lambs. The project will be well done, but how onerous the regulations will be for the i ndustry remains to be seen, Mondor said, adding that a laundry list of business practices that woul d be considered illegal could also be part of the package. Lenders have questioned Justices strong-arm tactics in its pursuit of fair lendi ng and, while its actions are likely to prompt many banks to make the changes it wants, it remains questionable whether these de facto laws would actually prevail in court, Mondor said. That q uestion, however, will probably remain unanswered. No one violation is likely to put an institution in jeopardy, said Richard J. Ri tter, formerly special litigation counsel in the civil rights division of the Department of Justice, wh o headed many of the departments fair lending investigations, including Decatur Federal and Chevy Cha se Federal Savings Bank. But he and Paul Hancock, section chief, Housing and Civil Enforcem ent of the Civil Rights Division of the Department of Justice, suggest that a close scrutin y of your institution using the following guidelines most likely will reflect accurately where your fa ir lending program stands: Read both the complaint and consent agreements involving Decatur Federal and Che vy Chase. Do you see any similarities between those institutions and yours? Are you operating in an area of significant minority population? Are 95% or more of your loans and applications in predominantly white census tracts? The same investigative techniques were used and similaritie s between the agreements exist. The redlining account is closely similar in both institutions, Ritter said. It i s based on the institutions lending record going back many years, analysis of market share, of CRA service territory delineation, of loan products offered, of how aggressively they are ma rketed, of the record of FHA lending in minority areas and of its compensation program. Buy maps. Use ones similar to those used by Justice in Decatur and Chevy Chase t o analyze your market share. Review your branch program. Review branch locations and history of branching An d go back at least 10 years; with Chevy Chase, Justice referred to practices from 1986. Exami ne what your bank did as well as actions taken by any predecessor bank. However, according to Hancock, institutions should start with current practices. Thats most important, he said. Also look at mortgage office openings. After reviewing branching and mortgage office programs, look at the solicitation program used to attract mortgage loan applications. Both Chevy Chase and Decatur relied on a sta ff of commissioned employees. In Decatur they were called account executives; in Chevy Chase they were loan originators. Both made sales calls on real estate agents and brokers t o do business. The accusation against Chevy Chase was that their effort was geared only to those do ing business in white neighborhoods, explained Ritter. Look at the number of minorities you have on your work force. Zero definitely is a problem. However, neither the Chevy Chase nor the Decatur agreement set quotas on minorit y hiring or even said the work force must reflect the banks community. The Chevy Chase agree ment did say that the bank needs to make a continued effort to recruit with particular emphas is on loan production positions. Examine the loan products you offer. Are any geared to low-and-moderate income b orrowers? Also examine your whole FHA and VA program to see whether it is being used, and whether its user-friendly. Use minorities in your advertisements. Depending on your community, you also sho uld buy ads in minority publications in addition to your general circulation ads. Chevy Chase w as ordered to do that. Review HMDA statistics. Statistics dont have the answers, but they can provide i nformation, Hancock said. If someone has statistics like Chevy Chase, for example, if you ar e operating in an area like D.C. and 97% of your loans are in white residential areas, you have se rious disparities.

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