Excerpts from letters sent by heads of the agencies to Sen. William E. Proxmire of Wisconsin, chairman of the Senate Banking Committee.
Alan Greenspan, chairman Federal Reserve Board
"Briefly stated, the staff analysis corroborates the accuracy of the lending statistics used in the newspaper's review but explains that interpreting those statistics involves the assessment of a complex set of variables and suggests that reliance on the statistics used in the articles do not prove or disprove the presence of racial discrimination in the Atlanta home loan market.
"Evaluating the accuracy of the statistical information presented in the Atlanta Constitution study is considerably easier than interpreting its meaning.
"The Atlanta Constitution study raises the issue of whether homebuyers in minority middle-income areas face less favorable credit terms than their white counterparts. Testing the accuracy of this assertion would be very difficult.
"Depository institutions could be purposefully discriminating against home purchase loan applicants from minority neighborhoods. Detection of discrimination in lending is difficult, particularly since it rarely is done overtly. Therefore, one cannot conclude absolutely that no racial discrimination exists in residential lending in Atlanta.
"Staff from the Federal Reserve Bank of Atlanta found that real estate agents operating in minority areas tended to refer their clients to mortgage bankers rather than commercial banks or savings institutions. At least some real estate agents perceive that the banks and savings institutions are disinterested in the minority neighborhoods.
"It appears that depository institutions could garner a larger share of the home loan (both government-backed and conventional) market in predominantly minority middle-income communities if they adopted more aggressive marketing programs. . . .
"A general review of lending policies may be in order. For example, the decision by some institutions not to offer FHA and VA loans appears to significantly reduce their chances of extending much home mortgage credit in certain areas. It may be that privately insured, low downpayment conventional loans are a viable alternative to government-backed loans in some cases. Other policies such as minimal loan sizes may have a similar effect.
"The substantial quantitative disparity between lending to minority and nonminority areas in Atlanta may be due to entirely appropriate economic considerations. Nevertheless, the issues raised by the disparity are deserving of greater attention in utilizing the effective tools we now have to encourage depository institutions to help meet the credit needs of the local communities in which they are chartered."
L. William Seidman, chairman, Federal Deposit Insurance Corporation
`We share your concerns about the allegations made in the article. While our investigation of the FDIC-supervised state nonmember banks in the Atlanta area did not reveal any racial discrimination, we are troubled by the possible public perception of discrimination. Such a perception may inhibit creditworthy borrowers from seeking credit from their local bank. As we have testified, we are continuing to strengthen our compliance enforcement programs, including CRA (the Community Reinvestment Act).
"All violations related to (fair lending laws) were reviewed. Violations were not numerous and were mostly of a technical nature such as failure to display the Equal Housing Lender Poster in lobby areas, providing applicants with incomplete adverse action notices and failure to maintain complete and accurate log sheets of applications filed. No pattern of discrimination was found.
"Based on examination findings, HMDA data and results of the consumer complaints resolution process, we do not believe that any discernible discrimination on a prohibited basis, racial or otherwise, has occurred in recent years or is now occurring in regard to banks supervised by the FDIC in the Atlanta region.
"We do not take issue with the accuracy of the statistical data used by the newspaper, since it was data which we routinely verify. However, based on the results of our review previously described and in view of the variable factors discussed below, we do not accept the conclusion that the data proves the existence of racial discrimination in home loan activity by depository institutions in the Atlanta area.
"(FDIC rules and regulations) require assessment of the bank's participation in governmentally insured, guaranteed or subsidized loan programs for housing. This assessment factor perhaps could be stressed more strongly by examiners during compliance examinations.
"Our enforcement of all consumer compliance laws and regulations, including those designed to ensure equitable lending, has suffered somewhat in recent years. This has been due to the unavoidable diversion of a major share of our attention and available resources to the increased number of problem and failing banks insured by the FDIC.
"However, the FDIC is moving rapidly to make significant improvements in this area. The number of consumer compliance examinations and visitations conducted by the Atlanta Regional Office more than doubled in 1987 when compared to 1986. The trend continues, in Atlanta and nationwide."
Robert L. Clarke, Comptroller of the Currency
"We have no disagreement with some of the basic findings of the Atlanta Constitution series. Some segments of the Atlanta community are probably not serviced by financial depository institutions as well as other segments are.
"Both the Federal Reserve Board analysis and our own analysis confirm . . . that mortgage loans to predominantly white census tracts are made at a rate approximately five times that of loans made to predominantly black neighborhoods of households similar in economic circumstances."
"There is no hard evidence from which to conclude national banks in the Atlanta area discriminate against individual applicants for housing credit on the basis of race or on the basis of location of the property for which housing credit is sought.
"Banks and thrifts may not be providing credit sufficient to serve all the home purchase and home improvement needs of low-income and moderate-income neighborhoods, particularly those predominantly black; however, it is unclear if some of the credit needs of individuals within these neighborhoods are not being served at all or if they are being served by lenders other than banks and thrifts."
"The controversy generated by `The Color of Money' stems more from the implicit causes of geographic disparities in lending patterns than from the disparities per se. Despite the well-written and comprehensive series of articles, conclusions many readers of the series can easily draw are: (a) Banks and thrifts may be redlining; and (b) Banks and thrifts may discriminate against black homebuyers, or against blacks in general.
"Perhaps the only way to detect or confirm discrimination is through the use of `testing.' The Atlanta study may demonstrate that at least some banks and thrifts have underestimated demand for their products.
"The key issue is whether encouragement of equal opportunity or encouragement of equal outcomes is the appropriate public policy goal. While it can be argued persuasively that all Americans (to at least some degree) ought to receive equal education or be equally well-housed, for example, it is far less convincing that all Americans ought to be equally in debt.
"The adoption of new loan programs on the part of local lenders tends to corroborate the Atlanta study's conclusions that some segments of the community may have been inadequately served by at least some lenders. The Atlanta Constitution articles clearly accelerated interest in meeting Community Reinvestment Act objectives on the part of national banks."
M. Danny Wall, chairman, Federal Home Loan Bank Board
"In summary, our review does not suggest intentional discrimination by thrift institutions in the Atlanta area. Nonetheless, the series and our own loan application data do suggest that there are unmet credit needs in Atlanta which we believe our member institutions can help meet.
"Our review of semi-annual loan application data . . . from 1981 through 1987 indicates that the approval rate for black mortgage loan applicants at thrift institutions has generally been between 75 and 80 percent of the approval rate for white applicants.
"Rejection rates . . . for black mortgage loan applicants (in Atlanta) . . . have ranged from 1.8 times the white rejection rate to 3.7 times the white rejection rate. . . .
"Our review of the loan application data also discloses that black applicants accounted for just under 5 percent of all mortgage loan applications received by thrift institutions in (metro Atlanta) from 1981 through 1987.
"Observed disparities in mortgage lending activity are thus attributable in significant part to the fact that thrift institutions in the Atlanta (metro area) receive very few mortgage loan applications from black applicants. This clearly requires careful review of advertising, marketing, and loan production activities during individual examinations.
"The Bank Board has been compelled in recent years to devote most examination resources to satisfy safety and soundness concerns. As a result, we did not allocate sufficient resources to the enforcement of the Community Reinvestment Act (CRA), nondiscrimination and related consumer issues. I have taken a number of steps to correct this.
"Earlier this year, I directed that a full CRA examination be conducted in the course of each regularly scheduled examination of an insured institution. We are also committing additional examination resources, revising the training our examiners receive . . . and developing tools to assist the industry to monitor its own compliance more effectively.
"Senior supervisory and community investment personnel from the Atlanta Bank have consulted with neighborhood organizations in Atlanta about local credit needs, and will continue to do so. The Atlanta Bank will also convene a meeting shortly with Atlanta-area thrifts to review the issues raised by the series, get a progress report from members on developments in the three months since the series appeared, and describe Bank resources like the Community Investment Fund, which is designed to encourage members to participate in local community investment programs or projects."
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