Race Bias in Home Loans to Get Scrutiny : Discrimination: Both Reno and Cisneros testify their agencies will step up enforcement efforts. Bank study shows wealthier blacks being turned down.

Two Cabinet agencies Thursday announced stepped-up efforts to combat racial discrimination in mortgage lending as the government reported that blacks with the highest incomes are being turned down for home loans at the same rate as the lowest income whites.

“To tolerate discrimination in housing in any form diminishes our potential to live and grow together as a nation,” Atty. Gen. Janet Reno told the Senate Banking, Housing and Urban Affairs Committee as she announced the expanded enforcement effort by the Departments of Justice and Housing and Urban Development.

HUD Secretary Henry G. Cisneros said that a Federal Reserve Bank study issued Thursday showing that blacks and Latinos were denied conventional home purchase loans at much higher rates last year than whites “tells us that discrimination is still alive and well in America.”

Some Republicans on the Senate committee questioned whether that data actually shows purposeful discrimination. Sen. Lauch Faircloth (R-N.C.), for example, complained about what he said is the tendency to “see a racist behind every tree.”

According to the data, 36% of African-Americans and 27% of Latinos were denied home loans they sought last year, compared with 16% of whites and 15% of Asian-American applicants.

Income variations do not completely explain the differences in the figures, Lawrence B. Lindsey, a Federal Reserve Board member, noted in presenting the 1992 Home Mortgage Disclosure Act data.

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“After controlling for income, white applicants for conventional home loans in all income groupings have lower rates of denial than black and Hispanic applicants,” he said.

The denial rate of 21.1% for whites in the lowest income category--less than 80% of the Metropolitan Statistical Area median family income--is the same as blacks in the highest income category--more than 120% of the MSA median family income.

Donald G. Ogilvie, executive vice president of the American Bankers Assn., contended that a large number of refinancings in predominantly white suburban areas had affected the data.

Reno, however, said that the figures show that many financial institutions make significantly fewer mortgage loans and have much smaller market shares in predominantly minority neighborhoods than white areas.

“These statistics are of great concern to us and, I am sure, to the other agencies with enforcement responsibilities in this area,” she said.

For years, the banking industry has contended that the higher rejection rates for minority applicants “can be explained by differences in credit worthiness, and that lower loan origination rates in minority neighborhoods are also attributable to a reduced demand for mortgage loans in those neighborhoods,” Reno noted.

But the Justice Department’s first-ever race discrimination suit against a mortgage lender, brought last September and settled by a consent decree, “sharply called into question” the banking industry response.

Under the stepped-up enforcement program announced Thursday, Justice and HUD agreed to share resources, expertise and investigative strategies in pursuing unlawful discrimination in mortgage lending. This means, in part, that the subpoena power granted to HUD under the Fair Housing Act will be shared with Justice, which lacks such authority.

The effort will be directed primarily at independent mortgage lenders, who write more than half the mortgage loans in the country and, except for those affiliated with banks, are largely unregulated, a Justice Department official said.

Reno said that the department will add 18 personnel to the 64 attorneys, paralegals and testing coordinators in the housing section of its civil rights division to focus on mortgage lending. About $1.1 million will be reallocated within the department’s fiscal 1994 budget to pay the increased costs.