The home mortgage industry's use of loan brokers, which has mushroomed in recent years, is apparently coming under scrutiny from the Justice Department as it continues its search for fair-lending violations.

Government and private lawyers said the department is ready to file a fair-lending suit against at least one mortgage company that gets loans through brokers. And the department is said to be investigating some similar cases.

The attention on broker-generated loans marks a significant departure for the Justice Department. To date, all 10 of the department's fair- lending cases have focused on loans made directly by banks, thrifts, or their affiliates.

An estimated 50% of all new mortgages, or about $325 billion of loans a year, now pass through brokers. Many large mortgage lenders have found brokers to be a more efficient source of business than their own branch offices.

"The use of brokers has just exploded in the last few years," said Jo Ann Barefoot, director of KPMG Barefoot Marrinan, a consulting arm of the accounting giant. "This is an enormous issue."

The Justice Department is also said to increasing its focus on lenders that make loans backed by the Department of Veterans Affairs. That focus and the attention to brokered loans together suggest that the department may be targeting mortgage banking companies. Those companies often make heavy use of brokers and have long originated government-backed loans.

Attorney General Janet Reno, after praising bank compliance with fair- lending laws, last week said her department is ready to turn its focus to nonbanks.

Banking lawyers said the Justice Department is preparing a case against a lender in the Long Beach, Calif., area, based on the pricing practices of brokers used by the lender.

At issue is whether the prices charged by brokers can amount to discrimination when those loans are folded into a lender's overall portfolio.

The case, lawyers said, shows that brokers who catered to minorities consistently charged all their customers more points, even if they were whites. Brokers who serve mainly white communities charged all borrowers lower rates.

Taken separately, neither set of brokers broke the law because they treated all their customers alike, the lawyers said. But the lender, which funded the loans, wound up with a portfolio where minorities were paying higher rates than whites.

Banking lawyers argue that Justice shouldn't hold the lender responsible for this disparity because the lender did not set the prices.

"If there are bad acts by brokers, then charge them," said Paul Mondor, director regulatory compliance at the Mortgage Bankers Association. "Let's not play the deep pockets game here."

But sources said government lawyers are arguing that the lender is ultimately responsible because it sets the final loan price. That means it has the responsibility to ensure that minorities are not paying more.

"The lender is responsible because the lender makes the loan," one source said. "It doesn't delegate authority to the broker."

Sources said the Justice Department has not yet filed the suit because it hopes to reach a settlement with the lender.

The legal reasoning behind the suit is controversial. Experts said the Equal Credit Opportunity Act and the Fair Housing Act do not require lenders to police independent brokers.

"If the broker is acting wholly independently of the bank and the bank has no way of controlling what the broker is doing, then it will be hard to hold the bank liable," said Richard Ritter, a former Justice lawyer who is a consultant on lending bias issues.

Several lawyers said the California company under investigated has hired former Attorney General Richard Thornburg and other lawyers at Kirkpatrick & Lockhart to argue its case. These lawyers said Mr. Thornburg has met personally with Deval Patrick, the assistant attorney general for civil rights.

The Department of Veterans Affairs cases, revealed in a speech Thursday by Justice lawyer Sandy Ross, stem from a data base the Department of Veterans Affairs maintains on mortgages it backs.

Lawyers who heard the speech, which was closed to the public, reported that Mr. Ross said the department is using the data to run statistical analyses on whether lenders charged minorities higher rates than whites.

Several lawyers said the Department of Veterans Affairs cases could prove particularly damaging to the mortgage industry because the data base contains unusually detailed information about the borrowers and the cost of their loans. This would make it easier for the Justice Department to prove that similarly situated borrowers were treated differently.

The department also is proceeding with its case against the finance companies of the Big Three automakers. The department is investigating whether these finance companies charged minorities higher rates for auto loans than similarly situated whites. Both sides are examining loan data to see if finance companies discriminated, according to lawyers.

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