U.S. to Target Bias in Mortgage Lending : Housing: One focus of the Justice Department will be banks that reject a lot of VA and FHA loan applications.

The federal government will take a more aggressive approach to combatting discrimination in home mortgage lending, including probing banks’ willingness to accept Veterans Administration and Federal Housing Administration loans and any tendency to market only to whites, a Justice Department official said Tuesday.

The government will go beyond simply examining the figures that show that blacks are rejected for mortgage loans at rates more than twice as high as whites of similar incomes, said John R. Dunne, assistant attorney general in charge of the civil rights division.

Instead, the Justice Department is now telling financial regulatory agencies that it wants “a more aggressive enforcement program and the development of sound cases for litigation,” he told a conference on mortgage discrimination.

The banking industry is under growing pressure to narrow the racial gap in mortgage lending in the wake of a Federal Reserve Board study last fall showing that blacks are more than twice as likely to be rejected for mortgages as are whites of similar income.

The Office of the Comptroller of the Currency last week revealed that it is investigating more than 250 banks with high rates of rejection of minority applicants. At some of the institutions, minorities represented fewer than 1% of applicants.

Numerous studies have shown “disparate lending patterns for white and black neighborhoods, but the subject is suddenly gaining new attention in the government,” Dunne said. “As we are all aware, these issues have surfaced again as a result of the recent riots in Los Angeles.”

Government-backed loans, such as VA and FHA mortgages, “are very much in demand in minority neighborhoods, often to a much greater extent than in white neighborhoods,” he said.

“We will certainly look closely at lenders who, without a plausible explanation, fail or refuse to originate these loans, or accept them in only token numbers,” he told the conference sponsored by the Federal National Mortgage Assn., the nation’s biggest investor in home mortgages.

“Most lenders will have a ready explanation for each and every loan they reject,” Dunne said. “However, when their credit decisions are carefully reviewed over time, it is possible to analyze whether those explanations are legitimate or a pretext for discrimination.”

For example, he said, government investigators will try to determine if bank loan officers “more actively and aggressively work to ensure that their white clients’ applications are approved” by giving them a chance to explain bad credit reports or advising them to pay off some credit card debt then reapply for a mortgage. If the same counseling and advice are not offered to minority applicants, the law is being violated.

A lender has a legal obligation “to meet the credit needs of the entire community in which it is located, including those of low- and moderate-income neighborhoods,” he said. That would include putting branches in different neighborhoods and directing marketing and advertising to all segments of the community.

Dunne also said that the Justice Department has begun using testers to search for discrimination in rental housing. For the first time, federal employees will supplement the efforts of local groups that investigate discrimination by sending out white and black applicants at different times to see if apartments or houses advertised for rent were made available without bias.

The Justice Department personnel will look for evidence of discrimination on the basis of race or national origin. The federal teams will be sent to communities without local testing groups. Local groups have provided the “lifeblood” of efforts to investigate housing discrimination, he noted, but there are many areas without the volunteers.

Fewer than 100 federal testers are at work now, but “this is the beginning of a major program,” Dunne said in an interview after his speech.

Using information gathered by local fair housing groups, the Justice Department filed a major lawsuit Monday, alleging discrimination against blacks, Hmongs (an ethnic group from Southeast Asia) and families with children in the Wisconsin cities of South Milwaukee, Oshkosh, Appleton and Greenfield. The suit was filed against owners of 2,000 rental units.