WASHINGTON -- A minority tester and a white tester both applied for loans above a suburban Philadelphia mortgage company's minimum loan requirement of $50,000. Both applications were processed.

Another minority tester and another white tester applied for loans below the requirement; neither application was processed. Is this discrimination or just business?

It's discrimination, according to the Philadelphia Commission on Human Relations, a government agency that has sued Sunrise Mortgage Co. for violating the Fair Housing Act by requiring a minimum loan amount. The Department of Housing and Urban Development has joined in the suit.

The human rights agency's complaint said that because a greater percentage of minorities than whites in Philadelphia live in housing that would not require a mortgage of $50,000 or more, the policy is discriminatory.

Question of Profit

The mortgage company, however, says that "business necessity" keeps it from selling smaller loans. And according to a statement from the company's law firm, "Not only would our client fail to make a profit on its processing and origination [and sale] of small loans, but [it] would even lose money."

The company's attorney, Leonard Bernstein of Reed Smith Shaw & McClay, said that the case should be a warning to the numerous institutions that maintain a minimum loan requirement.

"HUD says they see this as a trend," said Mr. Bernstein. "It's a situation that goes way beyond this client's predicament."

Mr. Bernstein said that this is the first case of its kind he has seen. "What about companies that only make jumbo mortgage loans? Does this case mean they can't be in that business?" he asked. He said that getting rid of that part of the industry is analagous to eliminating Mercedes dealerships because not everyone can afford a Mercedes.

|Legitimate Reasons'

Jonathan Jerison, senior counsel at the Institute for Strategy Development in Washington, said that the goal of HUD's push seems to be prevention of tiered pricing.

That regulation, which is part of the Cranston-Gonzalez National Affordable Housing Act, prohibits a variation in mortgage rates that exceeds 2% for Federal Housing Administration-insured mortgages within a certain area.

But, said Mr. Jerison, "There are legitimate reasons for charging a large amount for small loans." He said it's a part of business to charge more on a small loan to make it more profitable.

Implied Discrimination

Mr. Bernstein said businesses should beware that HUD is going to be aggressive in enforcing compliance in this area. One of the problems, however, is that no one was aware that a "disparate impact" test could be used to prove discrimination, he said.

Disparate impact, which involves implied discrimination rather than an overt violation, is nothing that covered by a clearcut law, said Mr. Bernstein.

"It's easy to prove discrimination if there's intent," he said. "This is different. It's an amorphous, floating cloud that confronts the industry."

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