The mortgage-lender testing fiasco at the Department of Housing and Urban Development raises serious doubts about the government's hiring of outside contractors to do its police work.
As the Office of the Comptroller of the Currency readies a program of its own, it ought to seriously consider hiring its own testers or some local government agency to do what amounts to an undercover investigation.
If the Comptroller's office lacks the expertise to train testers, it could hire outside firms to do that work. This approach would help prevent the outrageous conflict of interest that has cropped up in the HUD program.
As discussed in this column last week, a group called the National Fair Housing Alliance was hired by HUD for $1 million to send testers masquerading as homebuyers into banks and mortgage companies in several cities to uncover discriminatory practices.
Testers Advising on Testers
The noble aim of the program has been subverted because the Alliance simultaneously has been negotiating with mortgage lenders like Sears to provide educational and technical services designed to protect them from testers.
(This reminds me of the kid with a rock offering to protect your windows.)
HUD informed me last week that it was looking into the complaint. In a prepared statement, Roberta Achtenberg, assistant secretary for fair housing and equal opportunity, said the Alliance has been asked for information on its talks with Sears, "so that a determination can be made as to whether any actions undertaken or proposed by NFHA would violate any FHEO policy."
Ms. Achtenberg defends testing in general because "it has proven to be a most reliable and effective means of investigating whether a mortgage lending organization discriminates on the basis of race, color, religion, national origin, sex, familial status, or disability."
She also sees merit in the work of antibias consultants: "Education and technical assistance to mortgage lenders is also critical to ensure that they are aware of the Fair Housing Act's coverage so they can avoid taking discriminatory actions."
But, she adds, "The regulations governing this funding require that neither the testing organization nor individual testers hold any |specific bias or conflict of interest which would prevent or limit his or her objectivity or fairness.'"
Many Questions Unanswered
We're glad HUD is looking into this, and we hope Congress will stick its nose into the too, because there are a lot of unanswered questions.
The Alliance was awarded the contract in late December, during the final days of the listless Bush administration. (This is a reason why former HUD Secretary Jack Kemp should be remembered as a great quarterback.) There was no press release and other bidders had to call to find out about it. Yet one had been promised. Why the secrecy?
The final paperwork wasn't completed and the Alliance didn't get its money until May 28. During the intervening period, the new HUD secretary, Henry Cisneros, announced that he would strengthen the testing program; and yet the Alliance was negotiating with Sears and claims HUD knew all about it.
How much did HUD really know and approve?
Ridding the industry of bias is. a worthy goal. The crusade should be conducted in noble fashion. Congress should not permit the government's effort to degenerate into either a shakedown or a bounty hunt.