CHICAGO - Stephen Ashley is a Yankee patrician by birth, and a country gentleman by habit.

His ancestors were among the early settlers in Rochester, N.Y., and he lives on a thousand-acre farm that his family has called home since the early 1800s. The walls of his office bear witness to his passions: hounds and horses.

Despite this cultivated manner, Mr. Ashley has no aversion to controversy. As incoming president of the Mortgage Bankers Association of America, he is taking on politicians and his fellow bankers over the red-hot issue of lending discrimination.

Looking |to Develop Solutions'

At the MBA's annual convention in Chicago on Monday, Mr. Ashley, 54, unveiled a series of initiatives that he hopes will cool Washington's ardor for tough new remedies to combat lending discrimination.

"I see my job this year as one of leading mortgage bankers to positively focus on the issue and to develop solutions - and not be viewed as the problem," Mr. Ashley, chairman of Rochester's Sibley Mortgage, said in an interview before the convention.

"I think all of us feel that there is very limited willful discrimination - an overt refusal to extend credit because of the color of one's skin. There are, however . . . less-overt, subtle issues that are a part of the mortgage lending process," he said.

Sensitivity Training

The initiatives include MBA-sponsored seminars for minority homebuyers; sensitivity training for bankers who work with minority customers; and an effort to boost the numbers of minority employees and owners in the industry.

Mr. Ashley has little choice but to focus on fair lending. Congress, the Department of Housing and Urban Development, and housing activists have all signaled they want to regulate the industry more tightly.

Historically, mortgage banks, which sell the bulk of their new loans on the secondary market, have been far less regulated than banks and thrifts in the area of fair lending. Most notably, they are not covered by the Community Reinvestment Act.

A Challenge from HUD

The most immediate regulatory challenge is likely to come from HUD, which keeps tabs on mortgage banks.

Assistant secretary Roberta Achtenberg is working on regulations that would broadly define lending discrimination under the Fair Housing Act. Ms. Achtenberg's Office of Fair Housing and Equal Opportunity also is setting up a unit to identify and investigate cases of lending discrimination.

On Capitol Hill, the powerful chairman of the House Banking Committee, Rep. Henry Gonzalez, D-Tex., has increased his calls for bringing mortgage bankers under CRA. Rep. Maxine Waters, D-Calif., has a separate bill pending on the subject.

Rep. Joseph P. Kennedy 2d, D-Mass., who heads a House Banking subcommittee, also has been showing interest.

"The era of privileged treatment for mortgage bankers is coming to a close," says Chris Lewis, director of banking and housing policy at the Consumer Federation of America.

Why are the lending practices of mortgage bankers in the spotlight?

For starters, disclosures of data gathered under the Home Mortgage Disclosure Act show that lenders - banks, thrifts, and mortgage companies - reject minority mortgage applicants twice as often as white applicants.

Meanwhile, a recent study by Ralph Nader-led group, Essential information Inc., fingered some large mortgage banks in a report on redlining.

Using data from the Federal Reserve Board, the group analyzed 1.25 million loan applications made in 1990 and 1991. It found 62 cases in which lenders had excluded or underserved minority communities in their metropolitan markets. Mortgage bankers were responsible for two-thirds of those cases.

Unlikely Spokesman

With his patrician ways, Mr. Ashley may seem an unlikely choice to be the industry's spokesman on lending to lower-income and minority groups.

At Sibley he works in a small, unimposing office - befitting a true Yankee. The Genesee River flows in the distance, and Mr. Ashley draws a visitor's attention to the statue outside his window. It is of Mercury, the Roman god of commerce.

Mr. Ashley started at Sibley in 1968 as a commercial loan originator and underwriter. He became president of the midsize firm in 1975. By 1988, he owned the entire company.

American Banker interviewed him in his office in late September, just weeks after a riding accident had left him with a broken hip and a steel rod in his leg. He was in pain, but game.

Sees Guidelines as Problem

Broadly, Mr. Ashley ascribes the discrimination to underwriting guidelines that don't fit minorities' credit and employment patterns, and to mortgage banks' lack of market penetration.

The industry's underwriting guidelines are largely set by the secondary market companies, Fannie Mae and Freddie Mac, which buy loans made by mortgage bankers.

If they're not underwritten according to existing guidelines or standards, we have significant financial liability," he said.

Passing the Buck?

Jonathan Brown, author of the Essential Information Inc. report, dismissed this talk as "buck-passing."

"There's more flexibility [in the guidelines] than meets the eye," said Mr. Brown, who directed the banking research project. He noted that lenders have undertaken minority lending programs within the guidelines.

While the guidelines should be examined to see if they are discriminatory, mortgage banks also bear responsibility, he said.

Regarding what he considers the other major component of lending discrimination, Mr. Ashley said: "Part of the issue is just plain where lenders are located - where they have their branches, and that is all types of lenders: banks as well as mortgage banks."

Also, mortgage bankers don't know enough about how to market to minorities, who tend to be less informed and more intimidated by the process, he said.

Points to Progress

Nonetheless, he said, the industry has made some measurable progress. "We clearly are developing low-down-payment products that are aimed at enlarging the ability to qualify," he said.

Mr. Ashley said his group would fight any attempt to bring the industry under CRA-like rules.

Such rules, he said "would be a calamity. [They] would cause a retraction. Private lenders would just pull back. They would not put themselves at that kind of risk."

But not everyone in Congress agrees with that assessment.

Rep. Waters' bill, for example, would empower HUD to examine HMDA data and underwriting and marketing strategies to determine whether lenders are redlining.

So can Mr. Ashley's initiatives keep Washington at bay? Some people say he will have a real battle on his hands.

"They should be commended," said one Congressional source who follows fair lending closely. But "I'm very uncomfortable with the notion that all we have to do is teach good people to do good things and the problem goes away."

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.