Smoke and mirrors - mortgage-lending discrimination - Brief Article

Black Enterprise, June, 1999 by Joyce Jones

Clinton announcement $6.5 billion mortgage discrimination settlement in dispute

Well, it certainly sounded like good news at the time. The question now is whether it was all just smoke and mirrors. The largest settlement in history in a mortgage-lending discrimination case was greeted as groundbreaking when the Clinton Administration announced it earlier this year. "The Columbia National Mortgage Co. will offer $6.5 billion in home mortgages and extra efforts to help 78,000 minority and low- and moderate-income families unlock the door to home ownership," Clinton said at the time.

The announcement followed an incident two years ago in which the Department of Housing and Urban Development sent three test groups to Columbia's Fort Worth, Texas, office for random discrimination testing. This technique, frequently employed by HUD and other public and private organizations, consists of sending a Caucasian applicant and a minority applicant to the same place, and then comparing the information or treatment each receives to determine whether any discrimination took place. While there was no disparity in the treatment of the first two couples, the third found that a loan officer spent more time with a white applicant than another loan officer spent with a Hispanic applicant.

But representatives from the Maryland-based Columbia National Inc. say they were shocked by the settlement announcement. "I was furious," said Columbia's chairman and CEO, Dave Gallitano. "It hurt the employees of this company very deeply. Knowing the legacy of this company and knowing our past practices, I think people were very, very much offended."

Gallitano says that when HUD notified Columbia of its finding, the company said it found no reason for concern. "We said we don't think it's anything," recalls Columbia Senior Vice President Ali Landow, adding that the company initially refused to sign any agreements with HUD because "we didn't do anything wrong." After much discussion, however, the company consented to an agreement that said it was not found to have discriminated, that it did not acknowledge any wrong-doing and that it would continue to follow the same practices it had always used. Gallitano says that $6.5 billion is the figure Columbia National gave HUD based on its lending figures for the past five years. In other words, the $6.5 billion in "extra efforts" Clinton boasted about was "something we were going to do anyhow," adds Landow.

Yet the White House is standing by its announcement and HUD's not talking. After Gallitano spoke to CNN, Mercedes Marques, a HUD attorney, asked for equal time, saying, "There is no finding of guilt in that sense because they chose to settle before a full-blown investigation took place."

No matter whom you believe, blacks and minorities have plenty of reason for concern. According to a HUD attorney, who asked not to be identified, "The fundamental issue is the major gap in home ownership between African Americans and whites. Even though the country has an all-time rate of home ownership of approximately 65%, the gap between blacks and whites and Hispanics is still shocking." Some of that is due to inadequate credit or income, but studies have shown that a significant part of it is based on discrimination.

Some tips for would-be home buyers: when you're looking for a house, be wary of realtors who try to steer you to particular kinds of neighborhoods. An inappropriate focus on such an issue should be considered a red flag. On the lending side, however, it may be more difficult to detect discrimination. "That's why the testing process is so important," says the HUD attorney. "You may be able to establish whether the reasons certain questions are being pressed is because of something improper or simply because people want to know all of the information."

HUD encourages anyone who believes that he or she has been discriminated against to call its toll-free hotline (800-669-9777) to file a complaint. Under the Fair Housing Act of 1968, anyone who wishes to do so can file a complaint at any HUD office around the country. The agency will investigate and, if an informal settlement cannot be reached, the agency will eventually make a finding about whether discrimination has occurred. "The government basically provides a free lawyer," says the attorney. Use it.