The Justice Department is investigating several possible instances of discriminatory mortgage lending, and plans to open more probes soon, an agency attorney told lawmakers on Wednesday.
Members of the House Financial Services Committee said at a subcommittee hearing that evidence of racial discrimination in the mortgage market is especially troubling amid a surge in home-loan defaults that has showed signs of expanding beyond the market for borrowers with weak, or subprime, credit.
“There is no excuse, and no one should be at all willing to settle for a situation in which race of a borrower today makes so much difference for some people,” Rep. Barney Frank, D-Mass., chairman of the committee, said.
Grace Chung Becker, a deputy assistant attorney general, said several Justice Department investigations into discriminatory mortgage lending are ongoing.
“We expect to initiate more investigations in the coming months,” Becker said in prepared remarks.
Since last fall, the Fed has made three referrals of cases to prosecutors, with the Federal Deposit Insurance Corp. making two, Becker said. Two cases have been closed without charges, she said.
A Federal Reserve study last year found that 55 percent of blacks and 45 percent of Hispanics received home loans with rates that exceeded Treasury securities by at least 3 percentage points, compared with 17 percent for whites.
Consumer groups say this data provides evidence of discrimination in the mortgage market, while the banking industry says it can be misleading because buyers’ credit scores, the quality of the home, the size of the down payment, and other variables are not taken into account.
At the hearing, consumer groups said banking regulators have not been aggressive enough in going after lenders that discriminate against minority borrowers. Ginny Hamilton, executive director of the Fair Housing Center of Greater Boston said they have displayed “minimal and halfhearted efforts” to prevent discrimination.
Banking regulators defended their track record. Sandra Braunstein, head of consumer and community affairs for the Federal Reserve, said the agency enforces compliance with fair lending laws, saying that the central bank has made five referrals to the Justice Department this year — including two involving ethnic and racial discrimination among mortgage lenders.
Earlier this month, a report by the Washington-based National Community Reinvestment Coalition found that higher income does not protect blacks and Hispanics from receiving mortgage loans with above-market rates.
The report, which analyzed federal data on home loans. concluded that in 2005 blacks in 171 metropolitan areas were at least twice as likely as whites to receive expensive loans, and said the trend was more severe at higher income levels, rather than lower ones. Similar trends were apparent for Hispanics as well.
It’s common for low-wage workers in the Washington, D.C. area to be are steered into taking out loans for homes that cost $300,000 or more, on which they quickly default, said Saul Solorzano, executive director of the Central American Resource Center of Washington.
Bill Himpler, executive vice president of the American Financial Services Association said there are isolated incidents of discrimination but argued that the problem is not widespread.