Home Lenders Must Respond to Bias Charges

If ever an issue warranted vigorous response by the banking industry, the recent Fed report on bank mortgage practices does.

Charges are being leveled that banks discriminate by race in their assessments of mortgage applicants.

Accusations are aired on the evening news, have garnered headlines on the financial pages, and are making their way to the local news and editorial pages.

Worse, these charges are on the lips of almost every activist concerned about the roles banks play - and don't play - in bringing minorities into the economic mainstream.

Can damaging legislation, restrictive regulations, and public hearings that degenerate into bank-bashing be far behind?

The Cost of Silence

The industry, therefore, has to respond to the charges of bias. It also must preempt the actions of groups seeking to use the Federal Reserve Board's data, as disclosed under the Home Mortgage Disclosure Act, to challenge bank expansion plans or advocate new legislation or regulation.

The reasons for prompt action are obvious:

* Failure to answer accusations of bias gives credibility and a disproportionate share of media coverage to those who claim skin color influences bank lending decisions.

* Silence also erases the good will banks have earned for their many commendable efforts to help the economically disadvantaged.

* More important, an absence of rebuttals paves the way for those who would have legislation and regulation hold sway over credit judgment when banks review loan applications.

Not Guilty

But the most compelling reason to rebut the charges is this: The industry is not guilty. Its track record in corporate citizenship should generate pride, not guilt.

Banks' assistance to communities justifies speaking out.

Though it is hard to vouch for the bias-free behavior of every bank employee in the country, credit decisions are based on an applicant's ability to repay.

Lending Realities

Banks are in business to make loans; it is neither practical nor political to reject a good lending opportunity.

However, it isn't good for banks or would-be borrowers if loans are made to individuals whose finances, debt levels, and credit histories indicate the existence of imprudent risk.

Unfortunately, silence by bankers in the face of charges by activists combine to present a decidedly different picture in the court of public opinion.

A response by bankers is clearly in order.

Making the Case

Getting the bank's side of the story told should be easy, too, because there are facts worth sharing, audiences interested in hearing them, and numerous ways of getting information from banks to the public.

For example, commercial banks are making more mortgage loans and have surpassed thrift institutions as the primary source of home financing.

Additionally, some banks have new programs targeted directly at minority homebuyers. Other banks are conducting seminars throughout their serving areas to provide first-time homebuyers with information about the mortgage process. And still other banks have initiated in-house training sessions to ensure that bank employees who work directly with the public treat all mortgage applicants alike.

Spreading the Word

The people who should be getting this information include bank employees, potential homebuyers, and participants in the selling process, including real estate brokers, builders, lawyers, would-be sellers, and the many community leaders active in helping people find affordable housing.

Ways to get the word out include seminars, talks to community organizations, press releases, publications, marketing literature, and advertisements heralding banks' willingness to lend to creditworthy individuals.

All that is required is the will to get the information out. And I suspect that more banks will become ready to speak out as the issue of mortgage lending grows.

Facts and Figures

It can also be assumed that detailed analyses of mortgage lending practices will be part of the effort to spread the word.

In a questionnaire prepared earlier this year, the New York State Bankers Association asked its member institutions if they have any of the following in place:

* Programs to educate the public about mortgages.

* An appeals process for people whose mortgage application are rejected.

* Marketing activities targeted at low and middle-income neighborhoods.

* Joint ventures with public-sector agencies to promote housing.

The answers to these and similar questions can be useful in telling the industry's mortgage story.

Make Use of Community Groups

Also useful - and relatively untapped in efforts to set the record straight - are the numerous public-sector and neighborhood groups with which banks have been working to meet the housing needs of poor and middle-income families.

Surely representatives of organizations such as Neighborhood Housing Services and the Community Preservation Corp. in New York City can testify to the contributions banks have made in revitalizing housing and making new mortgage dollars available.

And surely these men and women, whose years of dedicated community work give them credibility among activists, would have little difficulty in attracting audiences.

Firsthand Evidence

There is no need to present a list of the many community leaders around the country who can provide firsthand evidence of banks' commitment to helping qualified homebuyers.

Bankers already know the key players in their areas, because banks work with them in helping such buyers. So why not work with them in telling others of their accomplishments?

Up to now, it has been the critics of banking - and those who are justifiably troubled by the Fed's report - who have dominated the discussions following the Oct. 21 release of the data.

Hence the frequency with which words such as "bias," "discrimination," and "racism" appear in headlines or the evening news telecasts.

Speak Up Now

Fortunately, there are millions of fair-minded Americans who would like to hear what bankers have to say before deciding if the pejorative language is justified.

But how long will this window of opportunity remain open?

Banks now have the chance to make their case. That won't last forever.

Making sure the bank side of the story gets aired before debate is cut off should be near the top of every bank's agenda.

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