Table Of Content\^
S. Hrg. 103-^51
FAIR LENDING ENFORCEMENT AND
TOE DATA ON THE 1992 HOME MORTGAGE
DISCLOSURE ACT
[HMDA]
Y 4, B 22/3; S. HRG. 103-451
Fair Leading Enforcenent and the Da
nr^^ING
BEFORE THE
COMMITTEE ON
AND URBANAFFAIRS
BANKING, HOUSING,
UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
ON
THE PROBLEM OF RACIAL DISCRIMINATION IN LENDING, HOW CUR-
RENT ENFORCEMENT OF FAIR LENDING PRACTICES MIGHT BE
STRENGTHENED AND TO IMPROVE THE COORDINATION BETWEEN
THE JUSTICE DEPARTMENT, HUD, FEDERAL FESfANCLAL INSTITU-
TIONS AND REGULATORY AGENCIES
NOVEMBER 4, 1993
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
JUN 2 7
S94
U.S. GOVERNMENT PRINTING OFFICE
77-287CC WASHINGTON : 1994
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments.CongressionalSalesOffice,Washington.DC 20402
ISBN 0-16-044039-4
0-94-1
77-287
^
\ S. Hrg. 103^51
FAIR LENDING ENFORCEMENT AND
THE DATA ON THE 1992 HOME MORTGAGE
DISCLOSURE ACT
[HMDA]
Y 4. B 22/3: S. HRG. 103-451
Fair Leading Enforcenent and the Da...
BEFORE THE
COMMITTEE ON
BANKING, HOUSING, AND URBANAFFAIRS
UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
ON
THE PROBLEM OF RACLA.L DISCRIMINATION IN LENDING, HOW CUR-
RENT ENFORCEMENT OF FAIR LENDING PRACTICES MIGHT BE
STRENGTHENED AND TO IMPROVE THE COORDINATION BETWEEN
THE JUSTICE DEPARTMENT, HUD, FEDERAL FINANCLAL INSTITU-
TIONS AND REGULATORY AGENCIES
NOVEMBER 4, 1993
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
m
m
2 7
U.S. GOVERNMENT PRINTING OFFICE
77-287CC WASHINGTON : 1994
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments.CongressionalSalesOffice,Washington,DC 20402
ISBN 0-16-044039-4
0-94-1
77-287
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
DONALD W. RIEGLE, JR., Michigan, Chairman
PAUL S. SARBANES, Maryland ALFONSE M. D'AMATO, New York
CHRISTOPHERJ. DODD, Connecticut PHIL GRAMM, Texas
JIM SASSER, Tennessee CHRISTOPHER S. BOND, Missouri
RICHARD C. SHELBY, Alabama CONNIE MACK, Florida
JOHN F. KERRY, Massachusetts LAUCH FAIRCLOTH, North Carolina
RICHARD H. BRYAN, Nevada ROBERT F. BENNETT, Utah
BARBARA BOXER, California WILLIAM V. ROTH, JR., Delaware
BEN NIGHTHORSE CAMPBELL, Colorado PETE V. DOMENICI, New Mexico
CAROL MOSELEY-BRAUN, Olinois
PATTY MURRAY, Washington
Steven B. Harris, StaffDirectorand ChiefCounsel
Howard A. Menell, Republican StaffDirector
Kevin Chavers, Counsel
ATINA S. Hahley, Legislative Fellow
MaryM. Fisher, Republican Counsel
Falue E. Bolen, Professional StaffMember
Edward M. Malan, Editor
(II)
CONTENTS
THURSDAY, NOVEMBER 4, 1993
Page
Opening statement ofChairmanRiegle 1
Opening statements, comments, or prepared statements of:
Senator D'Amato 3
SenatorMurray 4
SenatorBond 4
SenatorFaircloth 5
SenatorKerry 10
SenatorBoxer 10
SenatorRoth 18
SenatorBennett 23
SenatorSarbanes 26
WITNESSES
JanetReno, Attorney General, U.S. DepartmentofJustice, Washington, DC .. 6
Preparedstatement 53
I. The DecaturFederal case 54
n. Enforcement initiatives after Decatur 54
Response to writtenquestionsofSenatorRiegle 147
Henry G. Cisneros, Secretary, U.S. Department ofHousing and Urban Devel-
opment, Washington, DC 11
Prepared statement 59
EnforcingHMDA 61
Fairlending 62
HUD cooperation withJustice and OCC 63
HUD-OCC and interagencyinitiatives 63
Conclusion 63
Response to writtenquestionsofSenatorRiegle 148
Lawrence B. Lindsey, Governor, Federal ReserveSystem, Washington, DC 35
Prepared statement 64
Introduction 64
Detailedresults ofthe 1992 HMDA datacollection 66
Continuingefforts toeliminate lending discrimination 68
Conclusion 72
Response to writtenquestionsofSenatorMoseley-Braun 148
Eugene A. Ludwig, Comptroller, Office of the Comptroller of the Currency,
Washington, DC 39
Prepared statement 72
Summary 72
Introduction 73
. Enforcingfairlending laws 73
Conclusions 78
Response to written questionsofSenatorRiegle 150
Jonathan L. Fiechter, Acting Director, Office ofThrift Supervision, Washing-
ton, DC 41
Prepared statement 79
Introduction 80
OTS andinteragency fairlendingefTorts 80
Cooperation with the DepartmentofJustice 82
OTS affordable housinginitiative 82
Conclusion 83
Appendix 83
(III)
IV
Page
Jonathan—L. Fiechter, Acting Director, Office ofThrift Supervision, Washing-
ton, DC Continued
Memorandum dated November 12, 1993 to Janet Reno, entitled "Improv-
ingCooperationonFairLending andAflbrdable HousingIssues" 99
Andrew C. Hove, Jr., Acting Chairman, Federal Deposit Insurance Corpora-
tion, Washington, DC 43
Preparedstatement 84
I. FDIC's efforts to ensure compliance with CRA and fair lending
laws 84
n. FDIC efforts to coordinate with the otherFederal regulatory agen-
cies 86
ni. 1992 HMDAreportingofFDIC supervisedinstitutions 88
Conclusion 89
Response to writtenquestionsofSenatorRiegle 151
FAIR LENDING ENFORCEMENT AND
THE DATA ON THE HOME MORTGAGE
1992
DISCLOSURE ACT [HMDA]
THURSDAY, NOVEMBER 4, 1993
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The committee met at 10:08 a.m., in room SD-538 ofthe Dirksen
Senate Office Building, Senator Donald W. Riegle, Jr. (chairman of
the committee) presidmg.
OPENING STATEMENT OF CHAmMAN DONALD W. RIEGLE, JR.
The Chairman. The committee will come to order.
Let me welcome all those in attendance this morning. I want to
particularly welcome at the outset our distinguished Attorney Gren-
eral of the United States who is with us, and our Secretary of the
Department of Housing and Urban Affairs. After we have heard
from them, we have other distinguished witnesses later in the
morning which I'll introduce at that time.
We are meeting here todav to consider the 1992 Home Mortgage
HMDA
Disclosure Act data, referred to as the data, and with that,
the administration's fair lending enforcement efforts.
This hearing is part ofa long, continuing effort by this committee
to confront and finally eliminate the problem of racial discrimina-
tion in lending here in the United States.
During my tenure as chairman of the committee, we have given
this issue an absolute top priority, equal to any other that we've
been asked to confront because combating lending discrimination is
really essential to making the whole concept of America work for
all ofour citizens.
In the past, the Home Mortgage Disclosure Act data has sug-
gested a very stark disparity in lending between minority appli-
cants HanMdDnAonminority or white applicants. And unfortunately, the
1992 data, which we are going to review today, seems to
indicate that that problem continues to persist.
The problem oflending discrimination is not only morally wrong,
but it is illegal. It violates the laws ofthis land and therefore, must
be stopped where it is found.
Redlining, housing discrimination, and all forms of lending dis-
crimination were outlawed by the law of this country under the
Fair Housing Act of 1968 and the Equal Credit Opportunity Act of
1974. And specific legislation to end the credit plight oflow-income
and minority persons did not end with those two landmark pieces
oflegislation.
(1)
This committee has passed additional legislation that supports
and reinforces compliance with fair lending laws. Back in 1989, the
committee expanded the Home Mortgage Disclosure Act to require
banks and thrifts to disclose the race, sex, and census tract ofevery
mortgage loan applicant so we would be in a position to track this
problem to make sure it was being solved.
The Federal Reserve Bank of Boston released a study ofthe 1991
HMDA
data which indicated that even after all legitimate credit
considerations were taken into account, African-Americans and
Hispanic applicants were still 60 percent more likely to be turned
down than comparable white applicants with the same basic credit
circumstances. After the analysis of this data, banking regulators
and the industry acknowledged that mortgage lending discrimina-
tion is a serious problem that must be corrected. —
More recently, —the Association of Commimity Reform Now
known as ACORN released a study of the 1992 aggregate reports
which indicates that African-Americans and Hispanics are almost
three times as likely to be rejected for mortgage loans than are
white applicants.
HMDA
In addition to the revisions, the committee also strength-
ened the Community Reinvestment Act by requiring public disclo-
sure of both ratings and the data relied upon by examiners to ar-
rive at these ratings.
The committee also strengthened fair lending enforcement by re-
quiring Federal examiners to refer patterns of mortgage discrimi-
nation directly to the Department of Justice. In addition, lenders
were required to provide applicants who pay for an appraisal with
a copy ofthat appraisal upon request so lenders cannot use the ex-
cuse that the property is undervalued to disguise mortgage dis-
crimination.
In the last Congress, the committee passed the landmark Grov-
ernment-Sponsored Enterprises legislation. This legislation re-
quires Fannie Mae and Freddie Mac to achieve housing goals for
low- and moderate-income families and housing located in inner
cities. In addition, it strengthens their fair lending responsibilities.
Although this committee has made a sustained effort now over
4V2 years, and even prior to that time, to strengthen the Federal
law to encourage fair lending, the elimination of racial discrimina-
tion in lending will not occur without a tough regulatory enforce-
ment effort to back up these laws.
So today, we will hear the status ofthis administration's enforce-
ment efforts. We have, as I said before, a distinguished group of
witnesses this morning, and I very much look forward to their tes-
timony.
This is the first opportunity that our committee has had to have
the distinguished Attorney Greneral with us, and that is a very spe-
cial pleasure, and we extend a very warm welcome.
I have been personally encouraged by the guarantee that you
have given that the administration is going to vigorously enforce
the Fair Lending and Equal Credit Opportunity laws.
Also, we are pleased and happy to have Secretary Cisneros with
us here. I would like to say, at least in passing at the outset, how
much I appreciate the fresh and vigorous leadership that you've
been bringing to the Department since you've assumed that respon-
sibiHty.
On our second panel, we'll have representatives from the bank
regulatory agencies, including Comptroller Ludwig. I want to par-
ticularly applaud him for his strong initiative in combating mort-
gage discrimination and for the pledge that he made here, and I
quote:
To remove discrimination from our financial system, root and branch.
In addition, Federal Reserve Board GovernHoMr,DLAawrence Lindsey,
is here to announce the results ofthe 1992 data. Acting Di-
rector, Jonathan Fiechter, of the Office of Thrift Supervision and
Acting Chairman, Andrew Hove, Jr., of the FDIC will be testifying
regarding their current efforts to enforce the Fair Lending laws.
It's fair to say that lending discrimination is still HocMcuDrAring all
across this country, and it's evidenced by the 1992 data,
which indicates that high-income African-Americans and low-in-
come white Americans have the same loan denial rates.
Ifyou put people into the same economic categories, then there's
a very sharp difference in terms of who's getting the loans, and
who is being turned down.
So this is a problem that has to be addressed. It has to be solved.
It's going to continue to be a top prioritv during my chairmanship
and I hope that toda/s witnesses can help move us closer to a com-
plete solution to this very serious national problem.
Let me now call on my Ranking Member, Senator D'Amato.
OPENING STATEMENT OF SENATORALFONSE M. D'AMATO
Senator D'Amato. Thank you very much, Mr. Chairman.
Let me say, Mr. Chairman, there may be room for debate as to
the merits of the various banking proposals, about whether or not
there should be interstate banking or insurance and banking, or
community develo—pment banks. But there's one point over which
there is no debate ^banks may not discriminate against minorities
when making loans or providing services. That's not just my opin-
ion; that's the law.
Discrimination based on race or sex, religion or national origin,
or any other factor not relevant to the credit-granting process can-
not be tolerated. The effect of such discrimination harms each and
every one of us. Most directly, it hurts the individual or business
that is denied credit needed for housing or growth. Indirectly, it
hurts every other member of the community through increased
costs for social programs and other remedial efforts to make up for
this discrimination.
The latest Home Mortgage Disclosure Act data indicates that
while there has been significant improvement in the number of
home mortgage loans made to minority groups, there is still a large
disparity in the rate ofloan disapprovals between whites and other
minorities. This disparity occurs even after applicants are matched
for income.
For example, the loan disapproval rate for white applicants earn-
ing between 100 and 120 percent ofmedian-income is 10.6 percent,
while the disapproval rate for African-Americans in the same in-
come group is 24.3 percent.
When data indicates African-AmericEin rejection rates are more
than twice the rejection rates ofwhite appHcants ofsimilar income,
it has to raise significant questions regarding racial discrimination
by the lending community. You iust cannot have any sense offair-
ness or justice when people with the same incomes are being de-
nied the same kind ofloan. It'sjust wrong.
During this hearing, I would like to learn whether or not these
concerns are also shared by the bank regulatory agencies and if so,
what steps they're going to take to deal with this problem.
In addition, I'd like to know if changes in the Home Mortgage
Disclosure Act are necessary to obtain additional information nec-
essary to determine ifdiscriminatory practices are occurring.
Mr. Chairman, as I stated earlier, we cannot tolerate discrimina-
tion in the credit-granting process. This hearing is an important
step in determining the size and nature of this problem. Iffurther
remedial legislation is necessary, I'm sure that the committee will
act expeditiously under your leadership. You can be sure that I will
join you in promoting those efforts.
Thank
you.
The Chairman. Thank you very much. Senator D'Amato.
I want to indicate that Senator Carol Moseley-Braun very much
wants to be here this morning. Her mother is in a severe medical
circumstance, so that is a matter that she is having to attend to.
Senator Murray.
OPENING COMMENT OF SENATOR PATTY MURRAY
Senator Murray, Thank you, Mr. Chairman. I'll pass on an
opening statement, other than just to say thank you for having this
hearing on this extremely important issue. We're looking forward
to hearing from the administration and welcome you this morning.
The Chairman. Thank
you.
Senator Bond.
OPENING STATEMENT OF SENATOR CHRISTOPHER BOND
S.
Senator Bond. Thank you very much, Mr. Chairman, for calling
this very timely and important hearing.
I believe that it's critical thaHtMtDheAcommittee closely examine the
1992 data derived under the and understand what actions
that Justice, HUD, and the various regulators of financial institu-
tions are planning to take in response to this data on the issue of
lending discrimination.
We need to determine what steps this committee and Congress
need to take to ensure that the problem of racial discrimination in
lHeMndDiAng is eliminated. I am very much concerned that the 1992
data raises strong concerns about racial discrimination in
lending and presents serious questions that must be answered.
abIo'umt lalesnodicnogndciesrcnreidmianbaotiuotnofurromabtihleity19t9o1dHrMawDAbrodaatda.coAncnluusmiboenrs
of commentators have raised some interesting points about the
studies and I think we need to get answers to those as well.
I think that the data offers tne financial regulatory agencies, in
particular, a tool to assist them in identifying lending discrimina-
tion by specific institutions. We're most interested in hearing from
the various witnesses and reviewing the testimony for the actions
