HUD to Increase Use of Undercover Mortgage Applicants

President Clinton’s Department of Housing and Urban Development plans to step up its use of fake mortgage applicants to weed out loan bias by banks.

HUD Secretary Henry Cisneros said the controversial technique is necessary to enforce fair-housing laws, which he called a top priority of his department.

Bank regulators have opposed the use of testers, citing concerns about cost, reliability and ethics. But HUD last May decided to provide up to $1 million to nonprofit groups and private companies interested in performing bias tests.

“We will be upgrading and expanding and strengthening that part of the program,” Cisneros said at a conference held by the consumer group ACORN, the Assn. of Community Organizations for Reform Now.

Testing typically calls for people of different races but with similar credit histories and income levels to go undercover and apply for mortgages at the same lending offices.

The sponsors of the testers then compare the lenders’ treatment of the applicants and their loan requests.

Federal Reserve Board Gov. Lawrence Lindsey, who also spoke at the conference, said it would be preferable for banks to adopt testing programs of their own.

Private-sector efforts would be more cost-effective than government programs and bring results more quickly, he said.

Cisneros did not elaborate on how the use of testing would be strengthened.