Statement by John P. LaWare, Chairman, Federal Financial Institutions Examination Council and Member, Board of Governors of the Federal Reserve System, before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, February 24, 1993 - Statements to Congress - Transcript

Federal Reserve Bulletin, April, 1993

Significantly, racial background generally was not found to be a factor in the case of clearly qualified or clearly unqualified applicants, whatever their race. Disparities were evident, however, among applicants with some imperfections, such as a relatively high debt-to-income ratio or weaknesses in credit history. For such applicants, national origin or ethnic background appeared to be a consideration. The authors of the study suggest that differences in treatment may reflect differences in the level of assistance that applicants received from loan officers to address those deficiencies, although no specific evidence from the Boston study is available on this point. The degree to which the findings reflect outright discrimination by individual loan officers and financial institutions in the market is unclear. The reason for this lack of clarity is that this study was made of the lenders in the Boston market in general and did not include a review of individual lenders to assess whether any specific individuals were treated differently because of their race. The findings do confirm, however, the greater attention is needed to ensure the fairness of the mortgage granting process.

Efforts by the FFIEC to Strengthen

Fair Lending Enforcement

While the FFIEC agencies have separate programs through which they enforce fair lending laws, I know that all of us take our enforcement responsibility very seriously. We have been working hard to ensure that our efforts are responsive to the concerns expressed by the Congress and others. In this regard, the FFIEC has undertaken several initiatives to strengthen its member agencies' enforcement of fair lending laws.

Boston Study Follow-Up. After the release of the results of the Boston study in October, the member agencies of the FFIEC issued a joint statement that addressed the issue of disparate treatment. In the statement, we attempted to shift the focus a debate about whether unequal treatment is occurring to initiatives that will ensure that it does not. The interagency statement reiterated the agencies' concerns about fair treatment of applicants for mortgage loans. It pointed to increased empirical data that suggested that differences in denial rates may be unsupported by economic factors. The agencies also encouraged financial institutions to intensify their fair lending education programs for management, lending personnel, and consumers. We encouraged efforts to identify and promote examples of successful techniques used by institutions to ensure equal treatment of loan applicants, such as self-testing and second review of minority applicants.

In additions, each of the agencies has under way investigations of those financial institutions that took part in the Boston study where evidence of disparate treatment was present. These investigations include review of loan files and other relevant documents to discover whether any individual applicants were treated less favorably because of race. As I previously indicated, the Board did refer the name of one institution to the Department of Justice where the data from the Boston study raised concerns about that mortgage company's compliance with fair lending laws.