Comptroller of the Currency Eugene Ludwig and Federal Reserve Governor Lawrence Lindsey are the nasty boys in the ongoing bashing of banks for mortgage lending bias.

Mr. Ludwig, like the French prefect of police in "Casablanca," is cooperating with the Justice Department in rounding up 20 suspects so that one or two can be shot for racial discrimination related to mortgage lending.

Mr. Lindsey started waving an accusing finger at the industry before there was definitive evidence of high crimes.

Political Correctness

As wronged as this treatment makes some of you feel, the industry owes L & L a considerable debt of gratitude. Their politically correct theatrics are forcing bankers who don't believe there is a problem to act as though there is one.

Banks are setting aside pools of money for minority loans, launching educational programs for would-be borrowers, and working hand in hand with community groups and other lenders to create affordable housing. They're being more careful in their handling of minority mortgage applicants.

All of this is important for the industry's image, because no matter how blameless you think you are regarding discrimination, the public believes you are guilty.

A recent survey for Fannie Mae by researchers Peter Hart and Robert Teeter found that although the number of Americans who believe housing discrimination is among the nation's three most important problems declined marginally from 13% in 1992 to 9% in 1993, the number of Americans who view it as a serious problem has risen from 42% in 1992 to 52% in 1993.

Bad Press

A three-part Washington Post series on mortgage lending bias in the District of Columbia found that banks had a marked preference for white customers.

Reporters Joel Glenn Brenner and Liz Spayd looked at actual lending by banks and mortgage companies in minority neighborhoods as opposed to loan rejections (which is the way the government does such surveys).

The pattern that emerged was that banks make considerably fewer loans and have fewer branches in black and Hispanic neighborhoods than in white ones, even if the income levels of the neighborhoods are the same.

Though bankers claim minorities often are less qualified for credit, the reporters found that private mortgage companies are granting twice the level of loans in black neighborhoods.

(The Post concluded that banks have a duty to serve these communities because their having federal deposit insurance makes them essentially a public utility.)

Ugly Publicity

One of the more damaging notes came not from the statistics but from a statement by Signet Bank chairman Robert M. Freeman - who claims his remarks were taken out of context.

Asked why the branches in white neighborhoods were fancier than the ones in black neighborhoods, he commented: "People in those neighborhoods wouldn't go into plush offices. That's an intimidating environment."

Ugly publicity like that arouses Congress' desire to fiddle with the industry.

Following the series, House Banking Committee Chairman Henry B. Gonzalez, D-Tex., promised hearings, and Senate Banking Committee Chairman Donald Riegle, D-Mich., wrote a letter to the editor decrying continuing evidence of lending bias against blacks and other minorities.

L & L appear to be taking a page from the game plan of former savings and loan czar Timothy Ryan, who cleansed that industry of its corrupt smell in just over two years by using a very abrasive regulatory detergent.

If the banking industry can get rid of the odor of bias in two years, the rough treatment will have been worth it.

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