Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, August 23, 1994 TAG: 9408230103
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON NOTE: ABOVE LENGTH: Medium
The Justice Department charged in U.S. District Court that Chevy Chase Federal Savings Bank and its subsidiary, B.F. Saul Mortgage Co., underwrote 97 percent of their loans from 1976 through 1992 in predominantly white areas.
This was the first time the government charged that a lending institution engaged in illegal ``redlining'' - refusing to lend in an area on the basis of its racial makeup - solely by not opening offices or advertising its services in black neighborhoods.
All previous lending discrimination cases included allegations that specific black applicants had been denied loans normally given to whites with similar finances. No specific victims were identified in the Chevy Chase case.
A 1992 case against Decatur Federal Savings and Loan in Georgia had alleged bias in both underwriting and marketing.
``To shun an entire community because of its racial makeup is just as wrong as to reject an applicant because they are African-American,'' Attorney General Janet Reno said at a news conference. ``Banks must serve the needs of all residents in their community, not just the rich or the white. That's the law.''
Other lending institutions throughout the United States are under investigation for bias in underwriting or marketing mortgage loans, said Paul Hancock, chief of Justice's housing section.
Barnett Banks in Florida and Northern Trust Co. in Chicago are among them, Justice spokesman Myron Marlin said. He would not say whether those cases involved marketing, underwriting or both.
Reno said the investigation was sparked by a series of computer-assisted stories in The Washington Post in 1993 that reported on bias in mortgage lending here.
When the investigation began in June 1993, the bank and mortgage company had 92 offices but had opened no offices in any census tracts with a black majority in the District of Columbia or in neighboring Prince George's County, Md. Majority-black census tracts contain 90 percent of the district's black residents and 75 percent of the county's.
The government said that only 809 out of the 24,007 mortgages the company underwrote in 1985-1993 were in majority-black census tracts.
Reno said, ``We're not asking financial institutions to make bad loans ... just fair loans.''
Bank officials can overestimate the risk in black areas, Reno said. In Prince George's County, she said, nearly 40 percent of black households earn more than $50,000 - higher earnings than in some white areas the bank served.
Since the investigation began, the bank has aggressively sought business in black neighborhoods, the government said. It opened three bank and four mortgage offices in black areas.
The bank denied any intent to discriminate and did not admit violating fair housing and credit laws or the Community Reinvestment Act, under which in 1986 it designated the entire District of Columbia as its market.
But it agreed, at an estimated cost of $4 million, to open four more offices in black neighborhoods, to consider others, to advertise loans in black areas and to continue to recruit black loan officers.
The bank agreed to pay at least $7 million over five years by offering special home mortgage loans to all residents of majority-black areas of the district and the county.
These loans will be offered at either 1 percent less than the prevailing rate or 0.5 percent below the market rate combined with a grant to be applied to the down payment. The $7 million subsidy for these discounts will support home loans totaling $140 million.
The proposed settlement was approved by U.S. District Judge Stanley Harris.
by CNB