Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, December 5, 1993 TAG: 9312030048
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Long
And banks are working harder - and more imaginatively - on improving their records of granting loans to small businesses, minorities, women and the aged.
Probably few believe that banks are guilty of overt discrimination.
What the government and the bankers are seeking out, and trying to stamp out, are policies and prejudices leading to biased figures for home mortgages, consumer loans and small-business lending.
Figures for 1992 in the Roanoke Valley show blacks had a rejection rate ranging from 7.3 percent to 46 percent at various banks, while the denial rate for whites ranged from 4.6 percent to 19 percent at the same institutions.
Proof of the government's intentions came last month when the Federal Reserve Board, in a close vote, denied an application by Shawmut National Corp. of Hartford and Boston to acquire New Dartmouth Bank of Manchester,' N.H.
The reason was Shawmut's unsatisfactory record in extending mortgage loans to low-income people and minorities.
Bank industry observers took that as a sign of the government's new hard line on the Home Mortgage Disclosure Act and fair lending laws.
Attorney General Janet Reno recently told the Senate Banking Committee, "Historically, the department has received very few referrals of alleged mortgage lending discrimination from the regulatory agencies.
"In our view, the lending industry should be subjected to the type of investigation that our department has conducted for many years in other civil rights areas, including the review of all components of an institution's operation over an extended period of time."
"It is particularly important to focus on the lender's marketing, branching and advertising practices," Reno added.
Shawmut and Barnett Banks of Florida are already under active investigation by the Justice Department, according to a recent report by The New York Times.
The newspaper said the Justice Department a year ago drew up a list of 200 institutions targeted for investigation. It asked bank regulators to examine the banks' books and recommend up to 20 banks for investigation.
Nobody has so far suggested that any Virginia bank is on the list, but all of them are taking steps to ensure compliance with civil rights laws.
"I cannot imagine any Virginia bank purposely discriminating against anyone," said Walter Ayers, executive vice president of the Virginia Bankers Association.
Banks would no more turn away a customer than a tire store would, Ayers said, because customers make them money.
Yet, Ayers said, "subtle unintentional discrimination no doubt has occurred."
The association is publishing information designed to help banks develop procedures for ferreting out such hidden prejudice.
Brenda Skidmore, who is in charge of the effort at Crestar Bank in Richmond, called her institution "one of the most pro-active" in the field.
Although Crestar "feels pretty good" about its achievements, she said, "we keep trying. But it's a slow process."
Its program includes extensive statistical analysis, review of previous loans and study of its policies. Employees must take in-depth training.
All rejected mortgage applications are subject to a second review before a final decision is made, she said.
Crestar has an outreach program, meaning it sends staffers to libraries, schools and community meetings nights and weekends to solicit loan applications from customers who might otherwise be reluctant to approach a bank.
Signet Bank has an employee group that looks at all compliance with the Community Reinvestment Act, including lending practices.
Teri Temples, spokeswoman for the bank in Richmond, said it worked with other banks in achieving more flexible rules for the secondary mortgage market operated by Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp.
Because of changes in these rules, Temples said, the value of food stamps, for instance, now can be counted as family income toward a mortgage.
Signet has hired people who go out into minority neighborhoods to solicit loans. It sponsors commercials about home ownership on radio stations whose audiences are largely minorities.
The effort covers lending to small business, especially those owned by women and minorities. Temples said Signet itself purchases from minority businesses.
One effect of the government programs, she pointed out, has been to encourage creation of coalitions by competing banks to pool their resources for construction of affordable housing.
"We're doing all we can," said Jane Henderson, who oversees the program for First Union National Bank of Virginia in Roanoke.
First Union has conducted a review of lending policies that might lead to hidden discrimination.
One such policy, she said, required looking at the income of a husband and wife for purposes of a mortgage.
But First Union realized that some Hispanics live in extended families. Now, Henderson said, the bank is willing to count the earnings of all the siblings, in-laws and adult children who live together permanently.
First Union grants a second review for every loan application that is turned down. The reviewers, Henderson said, are instructed to "look at every possible way to make that loan."
The bank has hired an outside firm to test its own program. This firm sends actors of various genders, races and age groups with the same financial information to bank branches to test the reception they get from loan officers. This firm has yet to visit Virginia, where First Union has had offices only since March.
Henderson said the bank now keeps a portfolio of mortgage loans that do not meet the standard for pooling and resale on the secondary market.
Fannie Mae, she explained, permits financing of 95 percent of the cost of the mortgage. Of the 5 percent down payment, two percentage points may be in government grants, gifts and unsecured loans.
In First Union's portfolio, she said, the entire 5 percent can be gifts and grants instead of the borrower's own savings.
by CNB