Ushering in a renewed focus on fair-lending, the Department of Housing and Urban Development and the Mortgage Bankers Association of America last week began programs to increase homeownership for traditionally underserved markets.

The MBA has dedicated $1.5 million to a new venture, the Research Institute for Housing America, which will research traditionally underserved communities and provide lenders with information on risks and the benefits of making loans there.

HUD is dedicating $7.5 million in the next 12 months to locating and rooting out bias among lenders, landlords, and real estate agents. The agency has commissioned a study that will enlist men and women from various ethnic groups to pose as homebuyers and renters to grade companies' reception.

The programs were motivated in part by the disparity between the national homeownership rate of 72% for whites and 45% and 44%, respectively, for blacks and Hispanics. The national homeownership rate is 67%.

A recent housing coalition study found that mortgage lending to white and black applicants has grown at a disparate rate from 1995 to 1997.

The programs also signal a new era in fair-lending, said Daniel Russell, Norwest's executive vice president, affordable housing.

Underserved markets, which include all minorities and new immigrants, "will be the primary drivers for homeownership in the next 20 years," Mr. Russell said. "Anyone that doesn't get the message will be out of business."

The MBA's organization will be headed by Steven P. Hornberg, a former senior director of policy at Fannie Mae. "There's a lot of popular wisdom" about the benefits of homeownership that the group would like to verify, he said. In addition, the group intends to categorize risk severity.

"If there is a legitimate business opportunity" in a community, "how do you take advantage of it if you don't have information on risk?" Mr. Hornberg asked.

The MBA initiative drew praise from politicians and lenders. "This is an important and significant endeavor," said Attorney General Janet Reno in a letter to the organization. "We look forward to seeing the results of the institute's efforts."

Committee members include Countrywide's Angelo Mozilo and Norwest Mortgage chairman Mark Oman.

In 1993 the mortgage industry started its first proactive effort to lend to underserved communities, said Stephen B. Ashley, who was president of the MBA at the time. But efforts need to be renewed, he said.

"There's a changing field today," said Mr. Ashley, who is now chairman of S.B. Ashley Management. Mortgage lenders have creative loan products, technology, and automated underwriting and scoring systems that were not available five years ago.

Lenders said they welcomed HUD's investigation, as long as the test was done fairly.

The overriding debate with this type of testing is whether it is "scientifically valid," said Lawrence Platt, a lawyer at Kirkpatrick, Lockhart who represents lenders.

Valid testing checks for verifiable facts, Mr. Platt says, like whether borrowers were asked to explain their bad credit. But testing that asks subjects to answer subjective questions, concerning the friendliness of a loan officer for example, is less reliable, he said.

HUD has not disclosed its testing methods to lenders. The agency did not return calls.

In 1993 a similar "mystery shopping" program sponsored by HUD sparked outrage.

The National Fair Housing Alliance, an Atlanta-based civil rights group, was hired by HUD to do the testing. Lenders protested after, without HUD's knowledge, the firm began hard-selling its own counseling services to lenders it found had fair-lending violations.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.