The Justice Department, working closely with banking regulators, has begun a broad investigation of bias in mortgage lending.

The department has previously brought discrimination suits on behalf of individual applicants for mortgages. But it only recently began probing patterns of discrimination by lenders, said Paul Hancock, housing chief in the department's civil rights division.

Revealing Data

No suit alleging a "pattern or practice" of discrimination has been filed, Mr. Hancock said.

But the Justice Department has developed an approach to identifying such patterns, including careful reviews of a lender's marketing, advertising, and branching activities as well as its record of offering government-insured loans that are designed for use by low- and moderate-income homebuyers.

John Dunne, the assistant attorney general for civil rights, spread the word about the Justice Department's concern last week at a housing conference sponsored by the Federal National Mortgage Association.

"If credit decisions are based on race or national origin, all of our other efforts to make fair housing a reality will be in vain," he said.

Zeroing in on government-backed loans, Mr. Dunne added: "We will certainly

look closely at lenders who, without a plausible explanation, fail or refuse to originate these loans, or accept them in only token numbers."

The Justice Department activity is the latest in a spurt of government moves to weed out patterns of bias in mortgage lending.

Spotlight on L.A.

The efforts were generated in part by a Federal Reserve Board study, released last fall, that showed members of minority groups were being rejected for home loans more than twice as often as whites. The issue has received renewed attention in the wake of the Los Angeles race riots.

Over the past few months, the Justice Department has held several meetings with representatives of the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the Federal Trade Commission, and the Department of Housing and Urban Development in an effort to coordinate its investigations.

"In the past we have received very few referrals of lending discrimination cases from these agencies," Mr. Dunne said, according to a transcript of his speech at the Fannie Mae conference. "It is our hope that these meetings will produce a framework for a more aggressive enforcement program and the development of sound cases for litigation."

Trail Run for 'Testers'

HUD, meanwhile, is making its own moves to root out discrimination among lenders. The department recently revealed that it will sponsor the use of "testers" in three cities to uncover possible loan bias by mortgage lenders.

Such heightened attention by the government increases the pressure not only on banks and thrifts but also on mortgage companies that are not affiliated with depository institutions.

Housing advocates have claimed that these independent companies, which are not subject to the requirements of the Community Reinvestment Act, are in need of a governmental nudge to increase their low-income lending.

The enforcement weapons available to the Justice Department add considerable weight to the government's efforts.

Mr. Hancock said the department is poised to seek injunctions against lenders who discriminate, pressing for compensatory and punitive damages as well as civil penalties.

Techniques Honed in Atlanta

The Justice Department, which said it is enforcing the Fair Housing Act and the Equal Credit Opportunity Act, refined its techniques for detecting discrimination during a three-year investigation of the Atlanta mortgage market.

That probe, prompted by a series of newspaper articles in the Atlanta Journal-Constitution, has recently been focused on one lender, Mr. Dunne said. The identity of the lender could not be learned, but Mr. Dunne said the investigation is "very close to completion."

Since 1989, the Justice Department has become increasingly aggressive in enforcing the Fair Housing Act. For some time, it has been deploying agents who pose as homebuyers to look for discrimination among people offering to sell or rent homes or apartments.

HUD's decision to use testers was welcomed by Mr. Dunne. The technique, which was rejected last year by the Federal Reserve Board, may be "a useful tool in identifying the more subtle forms of discrimination that can occur in the mortgage lending process, particularly at the preapplication stage," Mr. Dunne said.

Fed Chairman Alan Greenspan said last fall when the board rejected the use of testers that he was wary of "sponsoring deception." The American Bankers Association has also objected to the the use of testers to uncover mortgage discrimination, saying it agrees with the Fed that the method may be unreliable, too expensive, and ethically questionable.

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