Hon. WILLIAM PROXMIRE, FEDERAL HOME LOAN BANK Board, Chairman, Committee on Banking, Housing and Urban Affairs, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This correspondence is in response to your letter of November 8, 1976, requesting the Board to provide information regarding the Board's implementation of the Home Mortgage Disclosure Act of 1975, the Equal Credit Opportunity Act, and related compliance programs. The following represents our response to the ten questions in your letters. (1) Is it the Board's position that simple racial and sex notation and recordkeeping under the Equal Credit Opportunity Act will facilitate enforcement of fair lending rights provided by the 1968 Civil Rights Act and the Equal Credit Opportunity Act? Yes. We believe that a simple notation requirement, together with the information presently collected on applications, will permit our examiners to review lender compliance with non-discrimination requirements in the course of regular examinations, and further, we believe this approach should be given a thorough test before attempting to develop more complex and costly recordkeeping and reporting programs. The Board communicated this position to the Board of Governors of the Federal Reserve System in a letter dated May 21, 1976, and in our comments to that Board on its first set of proposed amendments to Regulation B. We also believe that it is desirable to have such a requirement applied uniformly to all mortgage lenders. (2) Has the Board done any spot checks to determine whether associations are complying with the Home Mortgage Disclosure Act? Has the Board investigated complaints involving associations that allegedly failed to make public the required data? If so, what action was taken? The Board is determining compliance with the Home Mortgage Disclosure Act of 1975 ("HMDA") during each regularly scheduled examination, and instructions to this effect have been issued to all examiners, along with a summary of the major requirements of the statute and regulations. In addition, the Board has instructed its Principal Supervisory Agents to be alert for possible violations of the HMDA and to notify the Board's Office of Housing and Urban Affairs immediately upon the receipt of allegations of violations. The Board has investigated complaints alleging individual violations, and intends to continue to do so, if and as additional complaints are received. For example, the Board has received one list of 32 institutions claimed to be violating HMDA. This list was also the subject of your letter of October 18, 1976. Our inquiry determined that only seven of these institutions are subject to FHLBB supervision. One of the seven has less than $10 million in assets and is therefore not subject to the requirements of the Act. Five of the remaining six institutions were determined to be in compliance with the requirements of the Ac and implementing regulations. The remaining institution was found not to have the required data available for a period of approximately two weeks after September 30, 1976, as a result of computer difficulties, but this institution is now in compliance. (3) What is the Board's present intent with respect to sampling of mortgage disclosure data, as requested in my letter of October 27? As you are no doubt aware, representatives of the Board and the Federal Deposit Insurance Corporation have met with members of the Committee's staff to discuss your desire to collect and tabulate home mortgage disclosure data. Presently, the Board and the FDIC are exploring the feasibility and cost of implementing your request. In this regard, these appear to be a number of difficult technical problems which will require careful consideration. For example, our preliminary investigation has disclosed a very serious problem as a result of an apparent lack of standardization in the format of the data reported by the institutions. As a separate matter, we have already advised the Committee's staff that we have serious misgivings about the meaningfulness of the data that will result from the requested tabulations. The specific limitations of this data and the resulting problems of interpretation are both many in number and serious in nature. I have also been advised by our staff that analytical problems with the We are prepared if you wish to spend additional time with the Committee Staff to review these problems. In any event, we will advise you as soon as we have determined the feasibility and cost of your request. We will also advise you of any specific problems which might require modifications on the proposed format. (4) Pending determination of whether State disclosure laws in four States provide a mortgage disclosure program "substantially similar" to the Federal Mortgage Disclosure Act, are you currently requiring all insured associations in those states (New York, Massachusetts, California, and Illinois) to compile the reports required by Federal law? No. Under Section 306(b) of HMDA, the Federal Reserve Board is empowered to exempt, by regulation, from the requirements of the Act any State-chartered depository institution within any State or subdivision thereof if it determines that, under the law of such State or subdivision, thas institution is subject to requirements substantially similar to those imposed under the Act, and that such law contains adequate provisions for enforcement. Pursuant to the language contained in that section, four States have applied for an exemption. During the pendency of the evaluation of these applications, the Federal Reserve Board has waived the requirement of compliance with Federal law for Statechartered institutions in those States. Accordingly, the Board requires only Federally-chartered savings and loan associations in those States to comply with the HMDA. Assuming final approval by the Federal Reserve Board of the applications for exemption, the Board, in conjunction with the State authorities, will enforce compliance by State-chartered insured savings and loan associations with State disclosure requirements. (5) What use do you plan to have examiners make of the Mortgage Disclosure data in their regular periodic examinations? Examiners have not only been instructed to assure that each institution subject to the HMDA is in full compliance, as explained in our answer to question 2, they have also been told that "this information is also to be used by examiners as an additional tool in evaluating association compliance with nondiscrimination lending regulations." This instruction was contained in OES Memorandum T-62 (July 27, 1976), a copy of which is attached. This T memorandum concluded by saying "copies of the Federal Register notice of the regulation and the regulation itself are attached for your guidance in determining association compliance with Regulation C, and in using the reported data in determining association compliance with nondiscriminatory lending regulations." Thus, our examiners have been instructed not only to see that the disclosure data is available where required, but they have also been instructed to examine and use that data in conjunction with other procedures to determine institution compliance with our nondiscrimination regulations. (6) What use do you plan to have examiners make of the ECOA racial notations, if they are approved by the Federal Reserve Board? A. Extensive nondiscrimination procedures have been developed for FHLBB examiners, and racial notation information will materially assist examiners in carrying out these procedures. Examiners will review accepted and rejected loan files to determine, inter alia, that applications from members of minority groups are not rejected or adversely treated because of race, religion, sex, or prohibited classifications. Because the Board already has extensive examination procedures in this area, the adoption of a notation requirement will not necessitate the development of new procedures. Rather, the requirement should enable us to carry out our existing procedures more effectively. (7) Since the Committee's last oversight hearings in March, 1976, what changes or improvements have you made in your examiners' fair lending compliance program. Specifically, have you expanded the training program for examiners in the areas of civil rights and consumer rights? Have you expanded the review procedures used in examinations? Please provide the Committee with a copy of all relevant training material. Since the March hearings, the Board has developed an intensive 21⁄2 day training seminar on nondiscrimination. The program is being given to all our field examiners in a series of twelve sessions which began in October and are now scheduled to conclude in February. The seminars include workshops and discussions of case studies which are intended to improve the examiners sensitivity to the types of actions or policies which may be discriminatory. While additional tools, such as racial and sex notations, may serve to aid the examiners, the Board believes that our present procedures do not need expansion at this time. The objectives of our examination programs are designed both to determine compliance with the laws concerning nondiscrimination and to determine the extent of association managements' familiarity with those laws. The results of our examinations, of course, enable the Board and its staff to take formal and informal remedial action to correct any violation of law found to have occurred. Finally, we have appended copies of the agenda and some of the case study materials used during the Fair Housing Training sessions. In addition, sample loan files are utilized as case studies to increase examiners' familiarity with potential problem areas. As part of the instruction in these sessions, attorneys from the Justice Department discuss the legislative background of the various laws dealing with nondiscrimination as well as the techniques used by their investigators in handling complaints of discrimination. An example of the type of materials utilized by the Justice Department attorneys is also attached. (8) In cases where lenders appear to adopt different criteria for minority and majority applicants and/or white and integrated or minority neighborhoods, what would be an appropriate remedy, in your view? Have you ever imposed such a remedy? Where violations of nondiscrimination regulations or statutes are found, the Board intends to follow our normal supervisory procedures to obtain compliance. This clearly would involve both seeking informal corrective action, and the issuance of formal cease-and-desist orders, if necessary. In addition, relief in the form of corrective action may be requested or required on a case-by-case basis. It is not possible, however, to state a general rule concerning corrective action since such decisions can only be made on a case-by-case basis after careful review of all the pertinent facts. (9) What arrangements do you have to refer pattern or practice cases to the Justice Department for action under Title 8? The Board presently plans to handle the referral of such cases on a case-by-case basis. Over the past three years, members of the Boards' staff have worked closely with the staff of the Civil Rights Division of the Justice Department, and, in particular, with members of the Housing Section. During this three-year experience various matters have been referred to the Board by the Justice Department for investigation and resolution. In addition, the Board has made available to the Justice Department information which it has had in its possession regarding institutions which the Justice Department was investigating. The Board also serves with the Justice Department and three other Federal financial regulatory agencies and HUD on an interagency task force established to coordinate enforcement procedures under the Fair Housing laws. The task force has met periodically to discuss the various agencies' enforcement programs, and to agree on criteria for determining pattern and practice cases by the agencies and when such cases should be referred to the Justice Department. To date, the primary product of the task force is an interagency Memorandum of Understanding under which each participating agency agrees to forward information on discrimination complaints to other concerned agencies. (10) Based on the 1974 pilot survey by the Federal financial supervisory agencies, have you examined any associations which seemed to be avoiding making real estate loans to minority borrowers or minority neighborhoods? Association identified as exception institutions on the basis of the 1974 Fair Housing Information Survey data have been examined with special attention to fair housing and nondiscrimination policies. This cycle of examinations is using a special procedure for determining compliance with and findings of the Fair Housing Information Survey in conjunction with EOP 127, our regular nondiscrimination procedure. Because of the extremely low accuracy of the census tract information in the FHIS, the Board made no attempt to identify associations "which seemed to be avoiding making real estate loans to . . . minority neighborhoods." The Board's initial impression of these examination results is that a system such as the FHIS may not be as effective a method as we had anticipated of directing our attention toward certain associations for non-discrimination examinations. The Board is therefore placing increased emphasis on examiner training in non-discrimination. Sincerely, The CHAIRMAN. I'd like to ask the next witnesses to come up together if they would. We have Msgr. Geno Baroni from the Center for Urban Ethnic Affairs; Dr. Arthur Naparstek from the University of Southern California; Mr. Carl Holman, National Urban Coalition; Ms. Gale Cincotta, National Peoples' Action who Senator Garn has already introduced; Prof. Pierre De Vise, University of Illinois; and Prof. Calvin Bradford of the University of Illinois. Lady and gentlemen, we are delighted to have you here. I think you have done marvelous work and you've done it with considerable personal sacrifice and I know how very deeply you feel. If there's anything better in the world than doing good, I'd like to know what it is. I certainly welcome all of you. I understand that Monsignor Baroni and Dr. Naparstek may have a statement which they can join together. Monsignor, would you leadoff, sir? STATEMENT OF MSGR. GENO BARONI, NATIONAL CENTER FOR URBAN ETHNIC AFFAIRS Mr. BARONI. Senator Proxmire, Senator Garn, may name is Geno Baroni. I'm with the National Center for Urban Ethnic Affairs. In one sense I'm happy to be here but in another sense I wish we didn't have to be here, for our sake and your sake. I will submit to the record our joint statement which Dr. Naparstek will make in a few minutes and also I'd like to show you a new document, "Disclosure and Neighborhood Reinvestment," a citizens' guide which we put together with a number of neighborhood groups. I'd like to thank the committee, particularly you, Senator Proxmire, for giving citizen groups the opportunity to come here and help develop the law and help to get the law passed. I think it's interesting to note that the group that opposed the legislation cannot be totally expected to legitimately monitor that legislation from any position except from their own interests. From what I heard this morning, I guess I'm happy that they are and seem to be taking it seriously. I wish there weren't so much paperwork involved. I believe also their staff and seminars and task forces present their point of view, the point of view of the financial institutions. Second, that raises the issue of the overwhelming representation of the banking industry and financial interests on the Federal Home Loan Bank Board. Somehow, I wonder if it wouldn't be better if there would be consumer interests, people interests, neighborhood people, represented on those regulatory agencies and maybe that's something I think perhaps is for the future. But if it wasn't for your interest and this committee's interest and the Congress' interest, we would have no bill and if we had no bill our older cities, Baltimore, Boston, and over to Wisconsin and down to Illinois, would be the ones to suffer. The 75 cities in that area that we have looked at particularly from this point of view would bear the burden. Working class whites live in these older cities in many of these older neighborhoods that have been disinvested-their money has been taken and sometimes used and deposited or invested somewhere else and then when they want to borrow they are redlined. They live 80-991 - 77-6 |