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Mortgage loan bias to be probe target


In the wake of the Los Angeles riots and the renewed focus they have put on urban economic blight, two congressional subcommittees planned to launch an investigation today into racial disparities in mortgage rejection rates.

The panels planned to start with hearings to determine the reasons why minority applicants are rejected for mortgages nationwide more than twice as often as white applicants, regardless of income.

That disparity, revealed in data released last fall by the Federal Reserve, has received increased attention following the racial strife sparked by the innocent verdicts against four police officers in the Rodney King assault case in Los Angeles.

"There could be no greater demonstration of what occurs without economic development than what we saw with the L.A. riots," said Rep. Joseph P. Kennedy 2nd, D-Mass., who requested the investigation.

"People can debate the government-sponsored programs of the '60s and '70s all they want," Mr. Kennedy said, "but there is no replacement for the private sector and the banks to allow individuals to gain assets and access to the American Dream through home mortgages and small business loans."

The hearings were to examine the effect of the rejection rate disparity on individuals and neighborhoods, and the response by federal regulators, the financial industry, community groups and local governments.

Bankers have argued that it is misleading to view the rejection rates solely in terms of race and income. Lending decisions, they maintain, are affected by other legitimate factors, including past credit history, outstanding debts and net worth.

The hearings, to be held jointly by the subcommittees on consumer affairs, and housing and community development, have scheduled testimony from fair lending groups, community organizations, civil rights leaders and bankers.

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