ROOTING OUT DISCRIMINATION IN

MORTGAGE LENDING: USING HMDA AS A

TOOL FOR FAIR LENDING ENFORCEMENT

HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 25, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–54

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ROOTING OUT DISCRIMINATION IN MORTGAGE LENDING:

USING HMDA AS A TOOL FOR FAIR LENDING ENFORCEMENT

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ROOTING OUT DISCRIMINATION IN

MORTGAGE LENDING: USING HMDA AS A

TOOL FOR FAIR LENDING ENFORCEMENT

HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 25, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–54

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

MELVIN L. WATT, North Carolina, Chairman

LUIS V. GUTIERREZ, Illinois 

MAXINE WATERS, California 

STEPHEN F. LYNCH, Massachusetts 

NYDIA M. VELA ́ ZQUEZ, New York 

MICHAEL E. CAPUANO, Massachusetts 

CAROLYN MCCARTHY, New York 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ROBERT WEXLER, Florida 

GARY G. MILLER, California 

PATRICK T. MCHENRY, North Carolina 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

J. GRESHAM BARRETT, South Carolina 

TOM PRICE, Georgia 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

(V)

C O N T E N T S 

Page 

Hearing held on: 

July 25, 2007 ..................................................................................................... 1

Appendix: 

July 25, 2007 ..................................................................................................... 61

WITNESSES 

WEDNESDAY, JULY 25, 2007

Becker, Grace Chung, Deputy Assistant Attorney General, Civil Rights Division, U.S. Department of Justice ........................................................................ 44

Braunstein, Sandra F., Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve Board .................................. 36

Hagins, Calvin R., Director for Compliance Policy, Office of the Comptroller 

of the Currency ..................................................................................................... 42

Hamilton, Ginny, Executive Director, Fair Housing Center of Greater Boston . 10

Himpler, Bill, Executive Vice President, American Financial Services Association ........................................................................................................................ 17

Kendrick, Kim, Assistant Secretary, Office of Fair Housing and Equal Opportunity, U.S. Department of Housing and Urban Development ........................ 46

LaCour-Little, Michael, Professor of Finance, California State University at 

Fullerton ............................................................................................................... 16

Marquis, David M., Director, Office of Examination and Insurance, National 

Credit Union Administration .............................................................................. 40

Parnes, Lydia B., Director, Bureau of Consumer Protection, Federal Trade 

Commission ........................................................................................................... 47

Shelton, Hilary O., Director, Washington Bureau, NAACP ................................. 12

Solorzano, Saul, Executive Director, Central American Resource Center 

(CARECEN) .......................................................................................................... 14

Taylor, John, President and CEO, National Community Reinvestment Coalition (NCRC) .......................................................................................................... 7

Thompson, Sandra L., Director, Division of Supervision and Consumer Protection, Federal Deposit Insurance Corporation .................................................... 37

Yakimov, Montrice Godard, Managing Director, Compliance and Consumer 

Protection, Office of Thrift Supervision .............................................................. 39

APPENDIX 

Prepared statements: 

Baca, Hon. Joe .................................................................................................. 62

Miller, Hon. Gary ............................................................................................. 63

Becker, Grace Chung ........................................................................................ 66

Braunstein, Sandra F. ...................................................................................... 76

Hagins, Calvin R. ............................................................................................. 87

Hamilton, Ginny ............................................................................................... 114

Himpler, Bill ..................................................................................................... 129

Kendrick, Kim ................................................................................................... 138

LaCour-Little, Michael ..................................................................................... 148

Marquis, David M. ............................................................................................ 202

Parnes, Lydia B. ............................................................................................... 235

Shelton, Hilary O. ............................................................................................. 252

Solorzano, Saul ................................................................................................. 255

Taylor, John ...................................................................................................... 261

Thompson, Sandra L. ....................................................................................... 279

Yakimov, Montrice Godard .............................................................................. 301

Page

VI

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Baca, Hon. Joe: 

Newspaper article entitled, ‘‘Inland default notices see sharp rise’’ ............ 312

Watt, Hon. Melvin L.: 

Responses to questions submitted to Sandra F. Braunstein ........................ 315

Responses to questions submitted to Lydia B. Parnes .................................. 324

Responses to questions submitted to Kim Kendrick ..................................... 334

Responses to questions submitted to Calvin R. Hagins ................................ 444

Bloomberg News article dated June 13, 2007, entitled, ‘‘Regulators quiet 

as lenders targeted minorities’’ .................................................................... 452

(1)

ROOTING OUT DISCRIMINATION IN 

MORTGAGE LENDING: USING HMDA AS A 

TOOL FOR FAIR LENDING ENFORCEMENT 

Wednesday, July 25, 1007

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:03 p.m., in room 

2128, Rayburn House Office Building, Hon. Melvin L. Watt [chairman of the subcommittee] presiding. 

Members present: Representatives Watt, Lynch, McCarthy; Miller and McHenry. 

Also present: Representatives Frank, Green, Jackson Lee, and 

Baca. 

Chairman WATT. This hearing of the Subcommittee on Oversight 

and Investigations will come to order. 

Without objection, all members’ opening statements will be made 

a part of the record in their entirety, and I don’t seem to see that 

as a major problem at this point, so I’ll recognize myself for an 

opening statement. 

Today’s hearing is entitled, ‘‘Rooting Out Discrimination in Mortgage Lending: Using HMDA as a Tool for Fair Lending Enforcement.’’ 

Home ownership is the key to the American dream and a primary driver of our economic engine. Recent years have seen an explosion in home ownership caused in part by the proliferation of 

mortgage products that have allowed more people to buy more 

homes. 

It is good that home ownership rates are at historically high levels. However, this expansion of home ownership has come at a cost. 

Too many lenders saddle borrowers with high-priced, unaffordable, 

and unfair home loans. I read somewhere that one financial institution offered as many as 105 different mortgage products. 

When I bought my first home, the standard mortgage was a 30-

year fixed rate mortgage. Some of these exotic mortgages, 80–10–

10 loans, hybrid ARMs, and ARMs with exploding balloon payments are not only confusing, but they can be grossly unfair. 

We now have a foreclosure crisis looming due to dangerous highcost lending by lenders. Subprime and predatory lending have 

taken a toll on the market, leading some to question whether, ultimately, such loans provide a net gain in home ownership. We’re 

2

here today, however, to examine an even more troubling and persistent problem: Discrimination in mortgage lending. 

The Home Mortgage Disclosure Act, HMDA, requires lenders 

with offices in metropolitan areas to disclose to the public information about the mortgage loan’s geographic location, price, as well as 

the race, gender, and marital status of the borrower, among other 

factors. 

Ever since loan pricing data started to be collected in 2004, 

HMDA data has revealed a very troubling trend. Minorities, especially blacks and Hispanics, receive a disproportionate amount of 

high-priced loans. 

While HMDA data alone does not prove discrimination, recent 

studies seem to confirm that even when you control for income and 

creditworthiness, minorities still pay significantly higher prices for 

mortgage loans. The author of one of these studies, Mr. John Taylor, from the National Community Reinvestment Coalition, will 

present their findings today. 

The pertinent question for this hearing concerns whether the 

Federal Government has been asleep at the wheel regarding Fair 

Lending Enforcement, even more consistently and persistently than 

it has about lender standards and other abuse. 

In a June 13, 2007, article in ‘‘Bloomberg News,’’ HUD Secretary 

Alfonso Jackson charged that blacks and Hispanics are being targeted—those are his words—for high cost, unfair loans. 

I’d like to submit for the record the article appearing in the June 

13, 2007 issue of ‘‘Bloomberg News,’’ entitled, ‘‘Regulators Quiet as 

Lenders Targeted Minorities.’’ And without objection, we will submit that for the record. 

The article reveals that the U.S. agencies that supervise more 

than 8,000 banks have not censured a single bank for violating 

Fair Lending laws, some 3 years after Federal Reserve researchers 

gathered data demonstrating that blacks and Hispanics are more 

likely than whites to be saddled with high-priced loans. 

We are fortunate to have all of the Federal regulatory agencies 

with us today, as well as HUD and the Department of Justice, to 

explain what they are and are not doing to enforce the Nation’s 

Fair Lending laws. 

In fact, I structured this hearing in reverse order of what is customary, putting our consumer witnesses on the first panel so that 

our representatives from government agencies can hear firsthand 

what consumers and their representatives have to say. Perhaps 

they’ll take heed and consider taking some action to stop it. The 

cost of a quarter point in interest over the life of a mortgage is substantial, and we simply can’t tolerate that extra quarter point 

being based on race. 

With that, I will recognize the gentleman from California, Mr. 

Frank—Gary Miller, I’m sorry, for his opening statement. 

Mr. MILLER. Somebody told me Mr. Frank came in, and Barney 

and I sound a lot alike. 

Chairman WATT. Yes. 

Mr. MILLER. I know that we part our hair on the same side, so 

I can understand why you’d be confused. 

Chairman WATT. And there used to be a member actually named 

Gary Frank. 

3

Mr. MILLER. But he looked more like the chairman than he did 

like—well, Barney, it’s good to have you with us today, regardless. 

Chairman WATT. In any event, I’m recognizing my ranking member here, Mr. Miller, I think his name is. 

Mr. MILLER. Two minutes of my time is gone already, I know. 

Chairman WATT. For 5 whole minutes or such time—such reasonable time, as you may consume. 

Mr. MILLER. Well, I’ll be reasonable. 

Thanks for holding this hearing today to examine how the Home 

Mortgage Disclosure Act, that’s called HMDA, has been used to 

help enforce our Nation’s Fair Lending laws. 

I am pleased that we have with us today a panel of banking regulators, enforcement agencies, industry representatives, and others 

to shed light on efforts to eliminate discrimination in the mortgage 

industry. 

Housing finance is vital to helping families achieve the American 

dream of home ownership to help the overall health of the economy. 

To foster home ownership in this country we must eliminate abusive lending practices while preserving and promoting access to affordable mortgage credit. There’s no question that some non-prime 

borrowers are subject to abusive practices. This should absolutely 

be prevented. However, there is no question that vast numbers of 

borrowers who are not victims of such practices can be harmed by 

overzealous efforts to restrict non-prime credibility. 

HMDA data has been an important tool in striking this balance 

between protecting consumers while not inhibiting the availability 

of credit that gives many families the ability to become homeowners. HMDA data helps to determine whether disparities exist 

so that our enforcement agencies can investigate such disparities 

to determine whether they are caused by illegal discrimination 

practices. 

I believe the question before us today is how the data has been 

utilized to enforce our Fair Lending laws and if more can be done 

to root out discrimination. 

Clearly the price of a mortgage should be based on the economic 

risk of making a loan, not on racial, ethnic, or gender considerations. 

As we hear from the panel today, I want to remind my colleagues 

that subprime lending is a legitimate segment of the financial service industry that gives consumers who are unable to obtain traditional financing the opportunity to achieve the dream of home ownership. 

Subprime mortgages have provided millions of Americans with a 

way to achieve home ownership. The subprime market offers customized mortgage products to meet customers’ varying credit needs 

and situations. And, as one would reasonably expect, subprime borrowers will pay a somewhat higher rate to offset their greater risk. 

Literally millions of Americans are unable to qualify for the lowest rate mortgages available in the so-called ‘‘prime,’’ also called 

‘‘conventional’’ or ‘‘conforming’’ market, because they have less than 

perfect credit, or—if they cannot meet some of the other tougher 

underwriting requirements of the subprime market. This is not to 

say that anybody should be discriminated against, though. 

4

As we battle unscrupulous actors and we work to protect home 

buyers, we also have the duty and obligation of ensuring that we 

do not act in a way that constricts the flow of capital to creditstarved communities. 

I look forward to hearing from the witnesses today so that this 

subcommittee can assure that the detection and enforcement tools 

that are in place to protect home buyers in this country are working appropriately. 

Thank you. I yield back. 

Chairman WATT. I thank the gentleman for his opening statement. 

I will yield 5 minutes, or as much time as he may consume, to 

the chairman of the full committee, Chairman Frank. I have to remember his name. 

Mr. FRANK. I thank the chairman of the subcommittee. 

And sometimes things that aren’t planned work out better than 

others. It was—it’s the seniority system that decides who gets to 

chair what around here. And, in this particular case, the fact that 

the gentleman from North Carolina is the chairman of the Oversight and Investigations Subcommittee of this full committee at 

this time is a very fortuitous circumstance. 

The HMDA data that just came out was one of the most depressing things that I’ve seen in my capacity as a Member of Congress 

in the domestic area. Obviously, massive loss of life is the worst 

thing that we can see. We tend to see that, with the exception of 

hurricanes, outside the country. 

But looking at the public policies in the country, the fact that in 

2007, so many years after we supposedly officially banned segregation as part of the constitutionally-accepted practice, we have such 

evidence of racial discrimination in an important aspect of our 

human life, ought to make everybody sad. 

And our first response should not be accusatory, but rather how 

do we fix it? And I don’t believe that it’s all, or even primarily, explicit racism on the part of lending institutions. But no one who 

has lived in America and is familiar with this country’s history will 

expect anyone to believe that racism is not part of it, and the statistics don’t fully explain everything, but there are clearly terribly 

disturbing inferences that are inescapable. 

And then I recently, of course, saw the study in my own hometown, the metropolitan area of Boston, in which African-Americans 

in the upper income bracket are more likely to be pushed into 

subprime lending/borrowing than white people in much worse economic categories. There simply are not statistical explanations for 

that. 

So we have this combination of the subprime problem and of the 

racially discriminatory aspect of it. And it isn’t clear at this point 

what we can do. 

I will say this: If working together, as it is important that we do, 

we can come up with ways to improve the situation, to diminish 

this terrible, terrible statistic of racial discrimination, then this 

committee will do everything it can. And that’s why I say Mr. Watt 

from North Carolina, unlike many Members of this House, actually 

practiced law for 20 years. He is a skillful lawyer, who has now returned to put his skills to work in the public policy area. 

5

When you have, as chairman of this Oversight and Investigations 

Subcommittee, the immediate past chair of the Congressional 

Black Caucus, with his skills and experience as a lawyer, and the 

full backing of this committee, I hope everybody will take very seriously not just this hearing, but our commitment to changing public 

policy to the extent that we can. 

There is no excuse, and no one should be at all willing to settle 

for a situation in which the race of a borrower today makes so 

much of a negative difference for some people. 

So I thank the gentleman for holding this hearing and for all his 

work on the issue. And we have a first-rate staff, and I am glad 

to see my friend from California here, who has been a very strong 

supporter of our efforts to deal with the housing crisis. I really do 

believe, on a bipartisan basis, that we will be going forward on 

this. 

And shame on all of us, shame on this country, if the next 

HMDA survey shows data that is as bad as it shows today. 

Thank you, Mr. Chairman. 

Chairman WATT. I thank the chairman for his comments, both 

about the substance of the issue and about the chair of this subcommittee. 

Does the gentlelady from New York desire to make an opening 

statement? 

Ms. MCCARTHY. I thank the gentleman, but I have a policy of not 

doing opening statements. 

Chairman WATT. I recall that. She’s not a big fan of opening 

statements. 

Mr. FRANK. And she ends up giving dirty looks to people who 

give them. 

[Laughter] 

Chairman WATT. Yes. I do recall that she was not—I hope she 

won’t be offended when I recognize the gentleman from Massachusetts for an opening statement, if he desires to make one. 

Mr. LYNCH. Thank you, Mr. Chairman. 

I don’t have any such prohibition. 

Today’s hearing on discrimination and mortgage lending is an 

important step, I think, for the Oversight and Investigations Subcommittee, and I am delighted that the chairman has taken this 

on as an initiative. It was a long time coming. 

The pattern of discrimination revealed by the 2004 and 2005 

HMDA data requires our utmost attention. The 2005 HMDA data, 

like the 2004 data, revealed that black and Hispanic borrowers are 

more likely to obtain loans with prices above pricing thresholds 

than are non-Hispanic whites. 

Today I believe we will learn more, not only about the HMDA report and requirements, and the implications of these results, but 

also the efficacy of the Fair Lending enforcement that we conduct 

around the country. 

I am particularly pleased that a constituent of mine is here to 

testify this afternoon on the first panel. Ginny Hamilton is the executive director of the Fair Housing Center of Boston, a group that 

fights illegal housing discrimination in Essex, Middlesex, Norfolk, 

Plymouth, and Suffolk Counties of Massachusetts, including much 

of my district. 

6

And, as part of their mission, the Fair Housing Center researches and documents the nature and extent of housing discrimination, as well as the Fair Housing impacts of public policies. 

Ms. Hamilton will testify today regarding a report released by 

the group entitled, ‘‘The Gap Persists,’’ and I have a copy of it here, 

a report on racial and ethnic discrimination in the Greater Boston 

Home Mortgage Lending market. 

I am disheartened to know that this report also found differences 

in the treatment of disadvantaged minority home buyers in 9 out 

of 20 matched paired test cases, which is about 45 percent of the 

time. 

The interesting conclusion that they found was that, while there 

were seven cases that were pursuable or actionable, in legal terms, 

none of the tests revealed overt discrimination that would necessarily be captured by current Fair Lending Enforcement Programs that focus on overt discrimination, leading us to question 

whether HMDA data should be expanded to include borrower’s 

credit history, debt-to-income ratio, and loan to property value ratios. 

It is important that we address these issues. As someone who 

grew up in the housing projects of South Boston, where a lot of 

families struggled to move from that environment into their own 

homes, I know the challenges that are there, not only for racial minorities, but also for single women, in most cases, single parents, 

trying to move their families out of public housing, or, in some 

cases, living with other members of other families. It’s a struggle. 

I am delighted that Chairman Watt is holding this important 

hearing, and I yield back the balance of my time. 

Chairman WATT. I thank the gentleman for his opening statement. And, without objection, all other members opening statements will be made a part of the record. 

I would invite the members of the first panel to come to the table 

for brief introductions. 

As they come, I will just restate something that I said in my 

opening statement, that we structured this hearing in the reverse 

order of what has become customary in our committee process by 

putting our consumer witnesses on the first panel. That’s not done 

to put the regulators in any kind of negative position, but I thought 

it would be helpful to help build the context around this issue. 

It may be helpful to hear some of the concerns that are being expressed by the consumer witnesses, and to allow the regulators to 

hear some of those concerns, before we hear what the regulators 

are doing to try to address them. 

So I welcome the witnesses. I am going to do a very, very brief 

introduction of the witnesses because we have a lot of witnesses, 

both on the first and second panel, and we want to move expeditiously to their testimony. 

Our first witness is Mr. John Taylor, president and CEO of the 

National Community Reinvestment Coalition. 

Our second witness, who has been introduced by the gentleman 

from Massachusetts, is Ms. Ginny Hamilton, the executive director 

of the Fair Housing Center of Greater Boston. 

7

Our third witness is Mr. Hilary O. Shelton, director of the Washington bureau of the National Association for the Advancement of 

Colored People, the NAACP. 

Our fourth witness is Mr. Saul Solorzano—did I get close—the 

executive director of the Central American Resource Center. 

Our fifth witness is Mr. Michael LaCour-Little, professor of finance at the California State University at Fullerton. 

And our final witness on this panel is Mr. Bill Himpler, the executive vice president of the American Financial Services Association. 

And the rules—many of you have testified before, and you are 

aware that your full statements will be made a part of the record, 

so we ask that you summarize your testimony in 5 minutes or less. 

There’s a lighting system right in front of you. At 4 minutes, the 

yellow light will come on. At 5 minutes, the red light will come on, 

and it would be helpful if you would, as quickly as possible, wrap 

up when the red light comes on. Every once in a while people will 

wrap up before the red light comes on. 

So I will now recognize Mr. Taylor for a summary for 5 minutes. 

STATEMENT OF JOHN TAYLOR, PRESIDENT AND CEO, 

NATIONAL COMMUNITY REINVESTMENT COALITION (NCRC) 

Mr. TAYLOR. Thank you, Chairman Watt, and Ranking Member 

Miller. I’m also a constituent of Mr. Lynch, but apparently my vote 

is not important to him anymore, so— 

Mr. LYNCH. Not at all. I did not see you in the crowd, Mr. Taylor, 

and I want to welcome you to this committee. You have been doing 

lots of work on fair lending and housing issues in my district. 

Mr. Chairman, I apologize. I did not see Mr. Taylor in the crowd. 

Chairman WATT. Thank you. 

Mr. TAYLOR. Thank you for allowing me to fish for that compliment. 

Mr. LYNCH. Not at all. 

Chairman WATT. I could recognize some other reasons that he 

might have ignored you, but— 

Mr. TAYLOR. Yes. I understand. 

Chairman WATT. —we won’t go there. 

Mr. TAYLOR. First, it’s an honor to represent NCRC and our 600 

members who have been working on this issue for many, many 

years. Regulatory oversight must promote competitive markets for 

all consumers, regardless of color, income, age, or gender. 

Unfortunately, we have a dual marketplace in which white and 

affluent communities enjoy a wide range of product choices while 

minority and working class communities are stuck with high-cost 

home mortgage lenders and payday outlets. 

By shining a public spotlight on the institution’s lending activities, HMDA data has reduced the amount of discrimination and 

abuse. Yet as powerful as HMDA data has been, and efforts to stop 

discrimination, the full potential of HMDA has not been realized 

because key elements remain missing from the data. 

NCRC released a report this month entitled, ‘‘Income is no Shield 

Against Racial Differences in Lending,’’ and I would like to submit 

that for the record, Mr. Chairman. 

Chairman WATT. Without objection. 

8

Mr. TAYLOR. Using HMDA data from 2005, NCRC concluded that 

if a consumer is a minority, the consumer is more at risk of receiving a poorly-underwritten, high-cost loan. 

Middle income or upper income levels do not shield minorities 

from receiving dangerous, high-cost loans. Middle- and upper-income African-Americans are twice or more as likely, nationwide, 

than middle- and upper-income whites to receive high-cost loans in 

the 167 metro areas that we examined. 

In contrast, low- and moderate-income African-Americans are 

twice as likely to receive high-cost loans in 70 metro areas. 

So income is no barrier. As you become more successful, as African-Americans with more income, it actually gets worse, according 

to the data. 

Mr. Chairman, as you know, North Carolina’s metropolitan areas 

had three of the worst five areas in terms of African-American 

white disparities. Moreover, in Charlotte, which is in your district, 

middle- and upper-income African-Americans were almost 3 times 

more likely than middle-income whites to receive high-cost loans. 

Three of the worst metropolitan areas for Hispanics are in my 

home State, and the chairman’s home State, and my Congressman’s home State, for Hispanics in terms of disparity between 

whites. I know Ginny will have a lot more to say about that. 

NCRC believes that additional data on the writing variables 

needs to be added to the HMDA data. But until this data becomes 

regularly available, the evidence suggests that the burden lies upon 

skeptics to disprove the existence of discrimination. 

Now, regarding fair lending consumer protection and regulatory 

enforcement, current Federal fair lending enforcement is inadequate to protect the interest of working class and minority consumers. 

In 2005 and 2006, the Federal Reserve Board used the HMDA 

data and referred about 470 lenders to their primary regulatory 

agencies for possible civil rights violations. Yet there have been 

only two discrimination cases, that I’m aware of, brought by Attorney General Gonzalez’s Department of Justice to date, and none 

since the new pricing data has been available. 

Bank regulators are required by law to make referrals to the Department of Justice when they uncover a patent practice of the 

lender that suggests lending discrimination. 

In this outrageous period of high-cost loans, record foreclosures, 

and a plethora of disparate application of subprime versus prime 

loans to people of color, even for controlling for creditworthiness, 

two of the four bank regulatory agencies—only two of the four—

made referrals to the Justice Department last year, as they’re required to by law. That was the FDIC, which, to their credit, made 

almost 115 referrals, and then the Federal Reserve, which made 

several referrals. 

But the OCC and the OTS made zero referrals to the Justice Department on patterns of practice of lending discrimination in 2006. 

What the Justice Department did with these cases is not clear, 

but many of them, if not all of them, were referred back to the 

agencies. So the days of Janet Reno and others who took these 

cases seriously, and prosecuted people who were practicing disVerDate 0ct 09 2002 16:33 Dec 10, 2007 Jkt 038394 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\38394.TXT HFIN PsN: TERRIE
9

crimination because the regulators uncovered it, seem to be far 

away. 

Another overlooked component of Fair Lending Enforcement is 

CRA exams. In most cases, the Fair Lending section of the CRA 

exam reports, in one to three sentences, that the regulatory agency 

tested for evidence of discrimination lending that no such lending 

discrimination was found. 

The general public would have much more assurance that Fair 

Lending reviews were rigorous if the agencies described what type 

of Fair Lending reviews they conducted. 

The bank merger application process has become lax in the last 

few years, and this really matters. The last major applications 

where there were merger hearings were the Fleet Bank and Bank 

of America, and the Chase and Bank One mergers. That was back 

in 2004. 

Since then, there have been several large mergers from your 

home State as well, Mr. Chairman, with Wachovia, World Savings, 

and other financial institutions, where the public has not had an 

opportunity or the benefit of having a public hearing. 

These hearings are incredibly important for people in these communities to be able to express to the regulators what the impacts 

of the mergers have been, what the history of these banks have 

done in their community. In fact, through these merger hearings 

and through the commitments of these financial institutions, lowand moderate-income communities have gotten over $4 trillion in 

written CRA agreements. So this whole process is undermined 

when we don’t have public hearings. 

NCRC appreciates the recent regulatory moves, such as the guidance regarding subprime lending, but these moves remain inadequate to create fair and competitive markets in working class and 

minority communities. 

Since Federal agencies have had difficulties indirectly policing 

brokers, it is encouraging that the Federal and State regulators announced the pilot program. But let’s remember that it really is a 

pilot program consisting of about 12 institutions. 

And even if the Federal agencies rigorously implemented their 

recently— 

Chairman WATT. You’ll have to wrap up as quickly as possible. 

Mr. TAYLOR. Okay. That’s what I get for messing around at the 

beginning, Mr. Chairman. I will try and wrap up as quickly as possibly, and conclude in saying that while HMDA has been the powerful tool for rooting out discrimination, the HMDA data needs to 

include more key variables. Otherwise, the abuse of lenders will be 

a step ahead of the public and the regulators, inventing new methods for deceptive and usurious practices. 

The agencies have inadequately used the existing tools in the arsenal to combat discriminatory lending. They must do a better job 

conducting Fair Lending reviews and processing merger applications. 

The ultimate answer to all this, of course, is a National AntiPredatory Lending bill, which you are very aware of, Mr. Chairman. 

And, further, the HMDA data needs to be enhanced very quickly, 

including fee and price information, not just in high-class loans, 

10

creditworthiness of borrowers, loan terms whether their loans are 

fixed, whether they’re ARMS; if they are ARMS, for what period 

they’re fixed; a data field indicating whether the line was from a 

broker, a mortgage company, a depository institution; the age of 

the borrower’s critical loan-to-value debt-to-income ratios. 

And we support Senator Reid’s bill that would create a foreclosure and delinquency data base. 

In the interest that—we have a big panel, so I’m going to stop 

talking. Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Taylor can be found on page 261 

of the appendix.] 

Chairman WATT. I thank the gentleman for his testimony. 

And we now recognize Ms. Hamilton for 5 minutes. 

STATEMENT OF GINNY HAMILTON, EXECUTIVE DIRECTOR, 

FAIR HOUSING CENTER OF GREATER BOSTON 

Ms. HAMILTON. Thank you. 

Mr. Chairman, and members of the subcommittee, thank you for 

this opportunity to discuss discrimination in mortgage lending and 

tools for Fair Lending Enforcement. 

My name is Ginny Hamilton, and I am the executive director of 

the Fair Housing Center of Greater Boston. We were founded in 

1998, and we work to eliminate housing discrimination and promote open communities throughout the Greater Boston Region. 

We’re a full service Fair Housing Center, and receive approximately half of our funding through the Department of Housing and 

Urban Development’s Fair Housing Initiatives, or FHIP, and we’re 

an active member of the National Fair Housing Alliance. 

Discriminatory lending practices are particularly concentrated in 

our region, characterized by ongoing segregation, exorbitant housing prices, and below-national-average home ownership rates for 

African-American and Latino families. 

I’m here to speak with you today about the ways in which our 

organization uses HMDA data and paired testing to document and 

address housing discrimination in Greater Boston. I’ll also provide 

recommendations for Congress, the Federal agencies, and regulators. 

HMDA data have long shown significant racial and ethnic disparities in mortgage lending. The staff and board members of the 

Fair Housing Center of Greater Boston have conducted numerous 

studies, analyzing HMDA data, and I wish to highlight three of 

them here. I’ve also included all of these reports as appendices to 

my written testimony. 

Since the mid-1990’s, the Massachusetts Community and Banking Council, a coalition of banks and community groups, including 

the Fair Housing Center, has published annual reports documenting disparities in the lending market. 

The first report, ‘‘Changing Patterns,’’ has shown consistently 

lower rates of lending to borrowers of color, both in the City of Boston and throughout Greater Boston. 

Although there have been improvements in some areas over the 

16 years documented by ‘‘Changing Patterns,’’ lending to borrowers 

of color continues to lag behind lendings to whites. In recent years, 

11

there has been an increase in the ratio of loans denied to borrowers 

of color compared to white borrowers. 

The second MCBC study, ‘‘Borrowing Trouble,’’ looks specifically 

at the rapidly growing subprime lending market. Again, the studies 

document that a disproportionately large percentage of these high 

APR loans go to African-Americans and Latinos, even those with 

higher incomes. 2005 data show that upper income African-Americans are 8 times more likely to have a high-cost loan than whites 

in the same income bracket, and that’s talking about households 

that make more than $152,000 per year. 

The Fair Housing Center’s own study, ‘‘More Than Money,’’ used 

HMDA data to show that racial disparities in mortgage lending 

cannot be explained by affordability alone. In 80 percent of the cities and towns in Greater Boston, the number of African-American 

and Latino home buyers was less than half of what would be predicted by housing prices. 

Findings from HMDA data, however strong and however suggestive, are not conclusive proof of racial and ethnic discrimination. 

The evidence that is clear and convincing comes from paired testing. 

During the 4 months from October 2005 to January 2006, we 

conducted testing to determine the extent and nature of discrimination by mortgage lenders doing business in Greater Boston. 

We used trained volunteers to visit 10 banks and 10 mortgage 

offices and report on details of their experiences. Testers of color 

were assigned a slightly higher credit score and higher incomes 

and slightly lower debt compared to their white counterparts, so, 

in a discrimination-free environment, the tester of color would be 

slightly more qualified for the home loan. Even so, as Congressman 

Lynch said earlier, we found differences in treatment, 

disadvantaging the home buyer of color in 9 of the 20 match-pair 

tests we conducted. 

Two specific details from that. In 7 of the 20 tests, the white loan 

seeker received substantially more information from the lender 

about services or products. And in 5 of the 20 tests, the white tester was offered a discount on closing costs, which was not offered 

the tester of color or was quoted a substantially lower closing cost 

than the tester of color. The differences ranged from $500 to 

$3,600. 

Currently, most lending cases are brought by private fair housing 

organizations, and these private efforts are important. But the full 

engagement of responsible government agencies is an essential 

component of any serious effort to combat lending discrimination in 

all its changing forms. 

Lack of Federal enforcement actually provides a form of safe harbor for those in the industry engaging in discriminatory practice. 

We at the Fair Housing Center of Greater Boston and my colleagues at the National Fair Housing Alliance believe that it’s 

shameful that the four bank regulators and the other agencies 

charged with enforcing the Nation’s fair housing laws have made 

such minimal and half-hearted efforts to identify and reduce racial 

and ethnic discrimination and mortgage lending. 

We have recommendations for Congress to implement and oversee. First, we ask that Congress appropriate at least $26 million 

12

to HUD’s Fair Housing Initiatives Program, and pass the Housing 

Fairness Act of 2007, H.R. 2926, to support fair housing and Fair 

Lending work in our communities. 

HMDA data should be enhanced to include much more information, including the details John has already covered. 

Congress should require Federal enforcement agencies, including 

HUD, the Department of Justice, and the FTC to undertake more 

aggressive, effective, and extensive fair lending enforcement activities. 

Congress should require that Federal regulatory agencies use 

their authority to undertake stronger oversight and enforcement 

activities. 

And finally, Federal Government agencies and bank regulators 

should make much more aggressive and extensive use of paired 

testing in their own enforcement activities and investigations by 

contracting and working directly with qualified fair housing organizations around the country. 

Thank you, again, for this opportunity to testify before the committee. And I’m happy to answer questions and assist in any way 

that we can to help Congress fulfill your duties to enforce fair lending nationwide. 

[The prepared statement of Ms. Hamilton can be found on page 

114 of the appendix.] 

Chairman WATT. Thank you very much for your testimony. 

We now recognize Mr. Shelton for 5 minutes. 

STATEMENT OF HILARY O. SHELTON, DIRECTOR, NAACP 

WASHINGTON BUREAU 

Mr. SHELTON. Thank you very much. 

My name is Hilary Shelton, director of the NAACP’s Washington 

Bureau. 

The Washington Bureau— 

Chairman WATT. Pull that microphone just a little bit closer to 

you. 

Mr. SHELTON. —Federal Legislative and National Public Policy 

arm, our Nation’s oldest and largest grassroots civil rights organization. 

I am very pleased to be here today to talk to you about the Home 

Mortgage Disclosure Act, or HMDA, and its use in uncovering 

trends of discrimination in home lending. 

It is especially an honor to speak before Chairman Watt, who is 

indisputably one of the congressional leaders in the fight against 

predatory lending, and a champion of civil rights for all Americans. 

I would like to thank you, Chairman Watt, Chairman Frank, 

Congressman Green, and our many other friends and distinguished 

leaders who are here today to help us try to find a way to eradicate 

this awful plague throughout our Nation. 

Predatory lending is unequivocally a major civil rights issue of 

our time. As study after study has conclusively shown, predatory 

lenders target African-Americans, Latinos, Asians and Pacific Islanders, Native Americans, the elderly, and women at such a disproportionate rate that the effect is devastating to not only individuals and families but whole communities as well. 

13

Predatory lending stymies families’ attempts at wealth building, 

ruins people’s lives, and given the disproportionate number of minority home owners who are targeted by predatory lenders, decimates whole communities. 

High concentrations of subprime lending is a predominately racial and ethnic minority neighborhoods, and racial disparities, in 

subprime lending exists in all regions of our Nation. And while not 

all subprime loans are predatory, indeed NAACP recognizes the 

benefits of subprime markets to an informed constituency, which 

includes many without a strong traditional credit history. 

It is estimated that the vast majority of predatory loans are 

those with owner’s fees and/or conditions exist in the subprime 

market. 

And while many of the facts that I have just shared with you are 

common knowledge in our communities, they are also, thanks to 

the Home Mortgage Disclosure Act, verifiable facts. 

First enacted in 1975, HMDA was enacted to provide the public 

with data on mortgage lending patterns. Since that time, HMDA 

has become an individual tool to help the NAACP and other civil 

rights and consumer rights organizations in the fight to eliminate 

discrimination in mortgage lending. 

As a result of HMDA, we have several seminal reports, including: 

the Center for Responsible Lending’s 2006 report, ‘‘Unfair Lending: 

The Effect of Race and Ethnicity on the Price of Subprime Mortgages,’’ which uses the 2004 HMDA data; ‘‘Stubborn and Persistent’’ and ‘‘Stubborn and Persistent II,’’ an analysis of the 2004 

and 2006 HMDA data by the National Community Reinvestment 

Coalition; and ‘‘Risk or Race,’’ the 2003 report by Calvin Bradford 

for the Center for Community Change, to name just a few. 

As a result of these reports and their analysis of HMDA data, we 

can say conclusively that African-American and Latino borrowers 

receive a disproportionate share of higher-cost home loans, even 

when controlling for the factors, such as borrower’s income and 

property location, and that this disparity rises as income rises as 

well. 

And while it offers little solace to know that the anecdotal stories 

we have heard all along from our communities about unfair lending 

are true, it does help us deal with the problem. 

Specifically, in addition to civil rights groups using HMDA data 

to focus national attention on lending discrimination issues, HMDA 

data is used by local municipalities when developing fair housing 

programs, and should be used by Federal banking regulatory agencies, the U.S. Department of Housing and Urban Development, the 

Department of Justice, and the Federal Trade Commission, to boost 

enforcement of fair lending laws. 

HMDA data is also proving useful in litigation against unfair 

lenders, and is a key component in the case recently filed by the 

NAACP alleging systemic, institutionalized racism in subprime 

home mortgage lending. 

Like most good laws, however, HMDA could be improved upon. 

Specifically, the NAACP feels that the data would be greatly improved if the age of the borrowers were included, as well as the 

type of credit. 

14

The purpose of this second request is to determine if a mortgage 

broker was used as ‘‘steering’’ minorities to unaffordable loans, an 

especially prevalent problem in our communities. 

The NAACP, in collaboration with some of our allies who do 

some of the most in-depth analysis of the HMDA data, would also 

like to see more detailed pricing and underwriting information for 

subprime lenders in their HMDA data. Not only would this provide 

us with more detailed information, but it would also help to discourage pricing discrimination. 

Specifically, knowing the incidence of up-front fees, yield spread 

premiums, and pre-payment penalties would be significantly helpful in assessing the full breadth of subprime loans and who is receiving them. 

Finally, the NAACP would like to see more enforcement on the 

part of the Federal Government as a result of HMDA data. Despite 

the clear evidence of discrimination, which is illegal, the Federal 

agencies that regulate insured depository institutions have done little or nothing to eliminate discrimination in the mortgage market. 

Furthermore, the NAACP calls upon HUD and DoJ to enforce 

our Nation’s fair lending laws—enforcement activities which have 

come to almost a standstill since 2000. 

In closing, HMDA is an invaluable tool for many civil and consumer rights organizations, as well as Federal, State, and local regulators in identifying and fighting discriminatory lending practices, 

and the NAACP is pleased to testify in support of this crucial law. 

I will take your questions upon your request. 

[The prepared statement of Mr. Shelton can be found on page 

252 of the appendix.] 

Chairman WATT. I thank the gentleman for his testimony. I 

never heard you talk so fast. 

[Laughter] 

Chairman WATT. But your content was outstanding. 

Mr. Solorzano is recognized for 5 minutes. 

STATEMENT OF SAUL SOLORZANO, EXECUTIVE DIRECTOR, 

CENTRAL AMERICAN RESOURCE CENTER (CARECEN) 

Mr. SOLORZANO. Thank you, Mr. Chairman, and members of the 

subcommittee, for the opportunity to participate in this panel. 

My name is Saul Solorzano, and I work as the executive director 

of the Central American Resource Center, in Washington, D.C. As 

you may know, a large percentage of Latinos in the Washington, 

D.C., area have a Central American background. 

Relevant to fair housing loans is that many Central Americans 

are in the United States under a temporary protective status 

known as TPS, or under other immigration laws that allow them 

to work legally in the United States, but do not give them a pass 

to permanent residency because their rights and they are potential 

victims of predatory lending in order of uses, including those for 

lack of language access. 

CARECEN is a community-based organization that was established in 1982, and, since then, it has been providing direct services to over 5,000 Latinos per year in the areas of legal services, 

citizenship, housing, and other educational programs. 

15

CARECEN is an affiliate of the National Council of La Raza. Our 

housing council will serve people who come to the offices with a variety of housing problems and questions, including the increasing 

rates of foreclosures, and their inability to sustain mortgage loans 

that, after accepting them originally, seemed to be a great deal, but 

quickly have turned into a nightmare. 

Also, we refer potential cases of fair housing discrimination to 

the Equal Rights Center and the Washington Lawyers Committee 

for Civil Rights and Human Rights, here in Washington, D.C. 

I have submitted written testimony to the committee, so in this 

presentation, I will only mention some of the main points in the 

statement. 

First, I would like to explain how practices in lending victimize 

many Latino families and immigrants in Washington, D.C., Maryland, and Virginia. 

It is not difficult to find real estate agents and others who will 

offer low interest loans, and other types of loans, without explaining the full implications of the options. 

In many cases, these agents work with lenders, others, and intermediaries to cash in commissions without any regard for the victims. 

As an example, people making $400 per month, preparing vegetables and salads in downtown D.C., are enticed to take on loans 

of over $300,000. Of course, after a few months, or whenever someone moves out of the house, people are left with large mortgage 

payments and lose their homes. 

Another practice, or malpractice, is to overprice the homes and 

offer a first and second mortgage, with the second mortgage at a 

higher interest rate. Again, people with low salaries are approved 

for loans of up to $460,000 or more. 

In Montgomery County, in Maryland, a Latino man working as a bartender and making no more than $45,000 a year, got an 80–

20 loan, and a monthly payment of over $3,000. The man put the 

house up for sale, but after 3 months, we found a buyer. He moved 

out of the property. 

I could go on listing case after case, but I think that I have 

shown you the impact of predatory lending on our communities. 

Instead, I would like to raise another issue: Local ordinances, 

such as the one recently approved in Prince William and Loudon 

Counties in Virginia. 

One of the concerns that I am perceiving here today is how fair 

housing and civil rights violations may escalate in some areas, 

where local ordinances to prevent overcrowding in homes will also 

have civil rights implications. 

For example, standard families living in counties in Virginia 

could be the victim of forced foreclosure and displacement at the 

same time. Why? Because anti-immigrant activists are using zoning and other local ordinances to get rid of immigrants and nonimmigrants Latino families. 

As you can see, educational complaints from the community are 

an urgent problem. I hope the members of this community and the 

U.S. Congress will see how important it is to fund programs and 

initiatives to protect minorities and to eliminate predatory lending 

and other abuses in the mortgage lending industry. 

16

In writing the statement, there are some recommendations that 

we think are important. 

I thank you for the opportunity to speak about this pressing 

issue. Thank you. 

[The prepared statement of Mr. Solorzano can be found on page 

255 of the appendix.] 

Chairman WATT. I thank Mr. Solorzano—see, that rolls off the 

Southern tongue better once I heard it—for your statement. 

And we’ll now recognize Mr. LaCour-Little. 

STATEMENT OF MICHAEL LACOUR-LITTLE, PROFESSOR OF 

FINANCE, CALIFORNIA STATE UNIVERSITY AT FULLERTON 

Mr. LACOUR-LITTLE. Good afternoon, Mr. Chairman, and members of the subommittee. My name is Michael LaCour-Little, and 

I am a professor of finance at California State University at Fullerton. 

It’s an honor to testify here today on the topic of the Home Mortgage Disclosure Act. My recent research paper, which is included 

with my written testimony, addresses aggregate patterns in the 

2004 and 2005 HMDA data, and offers a forecast of 2006 results, 

which will be released later this year. Much of my testimony today 

will consist of highlights from that paper. 

In addition, I am currently editing a special issue of the ‘‘Journal 

of Real Estate Research,’’ on the topic of HMDA, and believe many 

of the papers contained in that volume will provide important additional information that policymakers should consider. 

Last year’s release of the 2005 HMDA data raised a number of 

questions given the increase in the number and percentage of higher-cost loans, or what I will refer to as HMDA spread-reportable 

loans, and the continued differentials across racial and ethnic 

groups. 

My work, specifically, assesses three possible reasons for that increase, as well as proposing others. The three reasons evaluated include: Changes in lender business practices; changes in borrower 

credit profile; and changes in the interest rate environment. 

Since the incidence of HMDA spread-reportable loans increased 

during 2005, it is tempting to infer that subprime lending must 

have increased proportionately. Indeed, the media and some commentators tend to equate HMDA spread-reportable loans with 

subprime. My research indicates, however, that relationship is not 

so simple. 

It’s important, also, to remember that the new HMDA data does 

not contain information on many of the factors that affect credit 

risk and the economics of the mortgage lending process. 

As a result, the new HMDA data is sufficient neither to explain 

the pricing of loans nor to draw conclusions about pricing fairness. 

At best, the bank regulatory agencies can use HMDA data as a 

preliminary screening tool to identify markets or institutions for 

further scrutiny. 

Let me highlight several major conclusions of my research for 

you. 

First: I did not find an increase in average borrower risk in 2005, 

though there does appear to be an increase in the use of riskier 

products, such as loans that allow negative amortization, and the 

17

average loan-to-value ratio did appear to increase for home purchase loans during 2006. 

Second: The yield curve accounted for a significant part of the 

growth in HMDA spread-reportable loans in 2005. 

Third: Wholesale originations played a major role in explaining 

the overall growth in HMDA spread-reportable lending. 

Results reported in my paper suggests that after controlling for 

the mix of loan types, credit risk factors, and the yield curve, there 

was no statistically significant increase in reportable lending directly by lenders during 2005, although wholesale originations did 

increase. 

My research identifies nine major factors that explain why a loan 

is HMDA spread-reportable: Loan size; term; property type; whether the line is an adjustable rate mortgage; credit score; loan-tovalue ratio; origination channel; and the yield curve slope. 

In addition, I find that the market price of risk increased by approximately 15 basis points during both 2005 and 2006, implying 

that rates were higher for all borrowers on a risk-adjusted basis. 

Finally, let me offer a forecast for the 2006 results when they’re 

released later this year. Given the change in interest rates, the 

likely mix of ARMs versus fixed, the increase in average LTV, and 

other factors, I predict that approximately 28 percent of loans will 

be HMDA spread-reportable. 

I mentioned earlier the special issue on HMDA that will be published later this year. Included in that volume will be an article 

that examines the differential in annual percentage rates paid by 

minority versus white borrowers, controlling for the segment of the 

market in which the loan is obtained, credit risk variables, and 

other economic factors. 

The paper utilizes a unique proprietary data set that includes 

over 1 million individual loan records from multiple lenders and 

many of the pricing variables that are not included in HMDA. 

The authors find that raw disparities in the APR, which are in 

the order of 50 to 100 basis points, decline to roughly 5 to 10 basis 

points when appropriate controls for market segment and credit 

risk are included. 

The authors remark, and I quote: ‘‘Public policies aimed at remediating APR differentials would achieve a far greater return 

through the elimination of race and ethnicity differentials in FICO 

scores, income, wealth that might be used to lower loan-to-value ratios, and, arguably, financial literacy, than they would through the 

elimination of any possible disparate treatment.’’ 

Mr. Chairman, I thank you for the opportunity to share these 

thoughts, and I’ll be happy to answer any questions. 

[The prepared statement of Professor LaCour-Little can be found 

on page 148 of the appendix.] 

Chairman WATT. I thank the gentleman for his testimony. 

I recognize Mr. Himpler for 5 minutes. 

STATEMENT OF BILL HIMPLER, EXECUTIVE VICE PRESIDENT, 

AMERICAN FINANCIAL SERVICES ASSOCIATION 

Mr. HIMPLER. Good afternoon, Mr. Chairman, Ranking Member 

Miller, and members of the subcommittee. 

18

My name is Bill Himpler, and I am the executive vice president 

for Federal affairs at the American Financial Services Association. 

AFSA’s 350 members include consumer and commercial finance 

companies, auto finance companies, credit card issuers, mortgage 

lenders, industrial banks, and other firms that lend to consumers 

and small businesses. 

Mr. Chairman, I commend you and your colleagues for holding 

this hearing. We believe that HMDA is already working as intended. While other laws, such as the Equal Credit Opportunity 

Act, and the Truth in Lending Act provide a means for enforcement 

against lending discrimination, HMDA serves as an early warning 

system by identifying lending patterns that warrant additional investigation. 

At the outset, let me state that the entire industry stands shoulder to shoulder with Congress and its commitment to combat lending discrimination. To that end, we believe there’s a good story to 

tell. 

Over the last 20 years, the industry has worked with policymakers and consumer groups as we’ve developed new technology 

that has allowed us to better serve consumers. 

Prior to the 1990’s, a consumer with blemishes on his or her 

credit record was essentially shut out from the dream of American 

home ownership. No one can argue that is the case today. Since 

2002, 2.8 million families have become first-time home buyers. 

At the same time, the mortgage industry is working with its community partners to meet a new challenge—the rise in defaults and 

foreclosures. 

As part of my testimony, I’ve attached a summary of initiatives 

undertaken by AFSA member companies that help borrowers avoid 

losing their homes. 

While all of us are concerned about foreclosures, we must not 

lose sight of the fact that more than four out of five subprime borrowers are making timely payments. As we discuss the HMDA 

data and ways to make our credit system better, we must be mindful of how any changes might affect liquidity. More importantly, we 

should allow the industry to provide manageable borrowing options 

for consumers facing reset or the possibility of foreclosure. 

With that, let me turn to our assessment of HMDA’s new reporting requirements. In 2005, lenders began reporting pricing information for higher-cost mortgages. Yet the HMDA data still did not 

contain credit scores or certain other information used to determine 

the credit risk associated with the loan. 

This begs the question as to why Congress shouldn’t expand the 

HMDA data to include this information. There are four reasons I’d 

like to speak to this afternoon. 

First: An expansion would raise privacy concerns between HMDA 

data and other publicly available data. Already, the identity of borrowers can be determined. Many people would prefer that their 

neighbors not know their credit score. 

Second: A requirement to collect credit scores in the HMDA data 

would raise the question of which credit scoring system to include. 

Fair Isaac’s FICO score is the best known, but it’s not the only one 

used. Many creditors make lending decisions based on their own 

proprietary scoring systems in addition to a FICO score. 

19

Third: Lenders would have to divulge the weight that they give 

to different risk factors in pricing their loans, thereby eliminating 

any trade secrets that allow for vibrant competition. 

And, fourth: An expansion of HMDA wouldn’t necessarily increase its effectiveness as a screening tool. 

If an expansion of HMDA data is not the way to go, what does 

AFSA recommend? 

As I stated at the beginning, we believe HMDA is working as it 

should. Following its analysis of the 2004 and 2005 data, the Federal Reserve saw patterns that it felt needed more scrutiny. Referrals were made to fellow regulators. Investigations are underway 

as we speak. 

We should recognize that this is the way the process is supposed 

to work. Regulators already have the authority to look at individual loan files. We must remember this and support their use of 

this when it is warranted. 

In addition, we must be mindful of how any changes to HMDA 

might affect the industry’s ability to provide borrowing options for 

homeowners facing reset or foreclosure. This is absolutely critical, 

given the current housing market. 

Mr. Chairman, we stand ready to work with you as needed. 

I want to thank you for inviting me to participate in this very 

important hearing. That concludes my statement, and I would be 

happy to answer any questions. 

[The prepared statement of Mr. Himpler can be found on page 

129 of the appendix.] 

Chairman WATT. We thank you, Mr. Himpler, for your statement. 

And let me thank all of the witnesses for their statements. The 

members of the subcommittee will now be recognized for questions, 

for 5 minutes each. And I will recognize myself first for 5 minutes. 

As I have been kind of making notes here and reading the testimony, it seems that there are several recommendations that are 

being made that at least some of the witnesses here think would 

improve the information under HMDA. 

Let me list those and see if I’ve missed any, because what I want 

to do is, in the second panel, ask—and I’m alerting them if they 

are here—the regulators their opinions about these. 

Ms. Hamilton, I think, mentioned paired testing. If you’re really 

going to get to a real evaluation of what’s going on, on the ground, 

that’s the only way to do it. 

Coverage of brokers, I think either in the testimony or in the 

written testimony has been suggested, and extending the data required to—extending the coverage of HMDA to other lenders that 

are not currently covered by HMDA, and I guess, although we’re 

talking about brokers not being lenders, but they need to be included in this equation. Extending the data required to be reported 

under HMDA, I think was a point that Mr. Taylor made. 

And more aggressive enforcement by the regulators using the 

HMDA data, or at least more aggressive referrals and possibly 

more aggressive enforcement by the Department of Justice once the 

referrals are made. 

20

Are there any that I have missed? As I made notes, did I miss 

any of the recommendations, generally, without getting into the 

specific content of them? 

Mr. Taylor? 

Mr. TAYLOR. Yes, Mr. Chairman. You may not have missed it, it 

may have been in your remarks. But, clearly, the fees and price information on all loans, not just high-cost loans, would be very valuable. 

And then the creditworthiness of the borrowers. This can be done 

in a way to protect privacy, but that obviously would create, as my 

old friend, Phil Gramm, used to say, ‘‘It would create sunshine on 

the process of lending.’’ So that would be very helpful. 

Chairman WATT. Any others that I may have missed in the general summary, without specific details about getting into the details about it? 

Mr. TAYLOR. Public hearings was the other on merger applications. 

Chairman WATT. Public hearings on merger applications, and 

they go beyond current public hearings or what’s the status on 

that? 

Mr. TAYLOR. Unfortunately, public hearings are becoming a thing 

of the past. The last ones were in 2004, as I mentioned, and there 

have been some major merger activities, where this data and other 

information becomes very relevant and available. So that would be 

helpful. 

Chairman WATT. All right. And I want to assure Mr. Himpler a 

bit. I’m not generalizing that everybody on the panel thinks that 

these are good ideas. I’m just summarizing the suggestions that are 

being made so we can ask the relevant questions about them. 

Ms. HAMILTON. Mr. Chairman, one other detail I think worth 

considering is with regard to the complexity of brokered loans. 

These loans often involve offers then counteroffers. And technically, 

those would be rejections, but in many cases they might have been 

a better offer for the consumer. 

So I think there’s room, especially in the issue of dealing with 

brokers and community advocates should sit down and figure out 

what are the ways that information can be captured, because that 

market is changing. It makes a big difference in the outcome for 

borrowers in the end. 

Chairman WATT. All right. In this brief remaining time that I 

have in my 5 minutes, can I get your thoughts about how brokers 

might best be included in the reporting requirement? 

Ms. HAMILTON. I know in Massachusetts there has been some 

move at the State level to look for licensing, to have all brokers licensed, and, therefore, have to have an origination number be part 

of that loan process. 

I don’t know how that would play into HMDA, but that’s one way 

of helping to track how a loan began and what that information is. 

Chairman WATT. Okay. I think my time has expired. 

And I’ll recognize the gentleman from California for 5 minutes. 

Mr. MILLER. Thank you very much. 

I’m hearing from the four witnesses here that HMDA is demonstrating discrimination, yet Mr. Himpler, in your testimony, you 

have said that HMDA data is a useful tool, but it paints an incomVerDate 0ct 09 2002 16:33 Dec 10, 2007 Jkt 038394 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\38394.TXT HFIN PsN: TERRIE
21

plete picture regarding potential discrimination in the mortgage 

and lending process. 

Can you explain the difference here? 

Mr. HIMPLER. I think, essentially, going back to something that 

my friend, Mr. Taylor, mentioned with respect to adding additional 

credit information to the data set, it bears repeating, that with already existing HMDA data and publicly available recording records 

at local county seats, you can already identify, by comparing these 

two, in many instances, who the borrower is. So I don’t know how, 

with adding any additional information, Mr. Taylor is going to be 

able to protect the privacy of those borrowers. 

At the same time, we believe that going through the regulators 

who are able to look at individual loan files and identify patterns 

that deserve further scrutiny, is the proper method. It protects the 

privacy of borrowers, it protects the modelling systems of lenders, 

and it keeps competition very vibrant. 

Mr. MILLER. Mr. Taylor, you said in your comments that HMDA 

has demonstrated clearly that there is discrimination in the marketplace. The only exception I had with your comments was when 

you said, ‘‘Skeptics must disprove discrimination.’’ I don’t think 

that’s the response, but I think it’s to prove discrimination. 

But you have said HMDA clearly proves there is discrimination 

in the marketplace. 

Mr. TAYLOR. Right. I think any fair analysis, in looking at the 

HMDA data, shows that there are really differences in treatment. 

Mr. MILLER. But that’s what we are trying to root out, isn’t it? 

Mr. TAYLOR. The number one reason given for why they say, 

‘‘Well, it doesn’t necessarily mean discrimination,’’ is this issue of 

credit scoring data. They say, ‘‘Well, you don’t know what the credit scores are.’’ 

Mr. MILLER. But HMDA’s— 

Mr. TAYLOR. The problem— 

Mr. MILLER. —HMDA’s—I only have 5 minutes. 

Mr. TAYLOR. Yes, sir. 

Mr. MILLER. HMDA’s supposed to demonstrate if there’s a problem in discrimination. And the regulators are supposed to review 

that information and then go to the lender and say, ‘‘These are the 

documents we have proving discrimination,’’ and then they really 

have to prove there was not. Is that not fair? 

Mr. TAYLOR. Yes. In fact, the regulators sitting behind us here, 

have actually more information than we have in HMDA data. They 

have the loan files. They have— 

Mr. MILLER. Because a lot of it’s privacy. I know that. 

Mr. TAYLOR. No, no. They have the loan files that they can look 

at. Even the financial institutions. 

Mr. MILLER. I know they do. 

Mr. TAYLOR. They actually have a lot more data where they can 

ferret out, follow the HMDA data trail, to these loan files and see 

if there are discrepancies. 

And the problem is, they actually have done that. The Federal 

Reserve identified 470 banks, which, by the way, in terms of assets, 

constitutes the majority of lenders in the United States, as in the 

last 2 years, as having some reasons that we need to look further 

as to why these discrepancies exist. 

22

Mr. MILLER. Okay. Thank you. And I think that’s where I’m trying to get to. 

Mr. TAYLOR. Yes. 

Mr. MILLER. Also, Mr. LaCour-Little. I’m not sure which one you 

prefer to be used. 

But you agree, essentially, with the Feds that the new HMDA 

pricing data are helpful but cannot be used alone to draw conclusions about the appropriation, but their pricing exists. Can you explain how the pricing data is helpful? 

Mr. LACOUR-LITTLE. Well, the pricing data can indicate raw disparities, but unless one looks at the additional factors that affect 

loan pricing or the incidence of higher cost loan pricing, you can’t 

determine whether those differences are related to race. 

Mr. MILLER. So HMDA data might, if you just take it on the data 

form, might make you think something exists that really didn’t 

until you get into the data the lender might have in their file? 

Mr. LACOUR-LITTLE. I think that’s correct. It’s widely recognized 

by professional economists that HMDA data produces a lot of what 

we call false positives, indications of something that isn’t really 

there when you look more deeply. 

Mr. MILLER. Well, Chairman Watt and I, along with Chairman 

Frank and many others have been wanting to do something on 

predatory lending, and I have co-authored many pieces to deal with 

that. 

But, Mr. Himpler, can you describe the mortgage market before 

this pricing and subprime lending existed, and weren’t some families absolutely left out of the marketplace because their credit profile was not stellar? 

Mr. HIMPLER. Absolutely, Congressman. As recently as the 

1990’s, actually just prior to the 1990’s, we were dealing with a 

credit system that was essentially an on-or-off switch. 

You either made it through the front door of home ownership because you had pristine credit or you were shut out altogether, for 

all intents and purposes. 

We now have a much more vibrant system that can price for risk 

that allows lenders to go deeper into the market to serve more and 

more consumers to price effectively and move folks into home ownership. And then, ultimately, up into less risk-layered forms of 

lending. 

Mr. MILLER. Thank you. I see my time has expired. 

Chairman WATT. The gentleman from Massachusetts, Mr. Lynch, 

is recognized for 5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. 

I’d like to ask a couple questions here, and the panel can feel free 

to answer as they see fit. 

While we’re talking about HMDA’s, I’d say, static measurements—let me put it this way. 

HMDA; the goal is to create a level playing field where racial discrimination is rooted out, and we create a level playing field. 

The Community Reinvestment Act, on the other hand, requires 

something further. It requires lenders to affirmatively reach out 

into areas or populations that are underserved and to root out the 

discrimination that’s out there. 

23

Mr. Taylor, at the end of your report, it was long and you didn’t 

get to read it all, but at the very end you talked about something 

that we’ve been working on here, which is, under the CRA when 

it first started out, banks were making most of the lending decisions. They were generating most of the loans. 

Now the trend has been, private mortgage companies and credit 

unions making—you know, the share that the banks were doing is 

shrinking over time, so the money going into the CRA initiative is 

dwindling. 

And you mentioned that at least some of the large credit unions 

and some of the large independent mortgage brokers should be 

brought in under the same requirement. I know in Massachusetts, 

and Ms. Hamilton knows and Mr. Taylor knows, that we have a 

State law that requires that. 

But I do notice that on the second panel, we have the director 

of the National Credit Union Administration, David Marquis, who 

is going to step up. 

And I was wondering if you would have some recommendations 

to him and to the regulators here about the whole issue of resources coming to this problem. I mean, we can tighten up the 

measurement, of course, to induce compliance so that we can root 

out as much discrimination as we can, but if the resources aren’t 

there to get into these neighborhoods and these populations that 

are not served, I’m afraid it’s not going to be enough. 

And I’d just like to hear the panel’s response and recommendations. 

Mr. TAYLOR. Thank you. I think you’re absolutely right, Representative Lynch, about a number of points that you’ve made. 

But in a lot of ways, the private, independent mortgage makers, 

that segment that makes these mortgages outside of the banking 

industry is shrinking rapidly because of some of the unsavory practices that occurred. And even when they were doing a lot of their 

business, a lot of that still involved banks that were securitizing it 

or buying them as tranches of loans, that they package and re-sell. 

So it’s not like the banks were divorced from this. 

But, clearly, we want more consumers into the mainstream financial institutions, frankly, because their basic banking services 

are more competitive and better than payday lenders, pawn shops, 

and check cashers as a way for basic banking services, but also because of CRA. 

As you have pointed out, the banks have an affirmative obligation, and that’s the language of the law, to serve the credit needs 

of underserved people, including low- and moderate-income communities. It is appalling to me that the credit union industry does not 

embrace this concept. 

You are going to hear—I mean, I’ve seen some testimony where 

some of the associations for the credit union’s going to brag about 

how they’re doing 2 percent more to people under $40,000 income 

in terms of loans. 

But the truth of the matter is, when you look at minorities, and 

you look at women, they’re underserved in the credit union industry compared to banks. 

Banks weren’t created to serve people of small means. That’s the 

language from the Credit Union Act when it was created. It was 

24

created to serve people with small means. And the credit unions 

will get up and brag about how they’re slightly beating the banks 

in this area, but, in fact, they are way behind the banks in other 

areas. 

And the Credit Union Administration ought to be coming to this 

hearing saying we embrace and we support what our colleagues 

and the other agencies embrace and support, and that is a strong 

CRA. And we hope that law does get expanded to them and to others who are in the mortgage business, because it’s good business 

to have an affirmative obligation to make sure that competitor 

products are going to working class Americans as well. 

Mr. LYNCH. Ms. Hamilton? 

Ms. HAMILTON. I think one thing we need to watch for in looking 

at the improvement that CRA has brought, and I see in my neighborhood, banks that are now in a central city neighborhood that 

weren’t there 15 years ago. 

What we need to look at, though, is how the corporation as a 

whole is using their services and selling their products. Are they 

marketing different products in predominately African-American or 

Latino communities than they are in predominately white neighborhoods? Are they only setting up a subprime affiliate in an urban 

neighborhood and the prime affiliates in the suburban neighborhoods? 

And, right now, the way regulations happen, those affiliates are 

examined on their own rather than the entire corporation being 

looked at. 

So each affiliate could be treating all their applicants fairly, but 

the overall corporation’s lending is highly unfair. 

Those sorts of pictures can be found looking at HMDA data and 

looking at practices if regulators are doing assertive looking. 

Mr. LYNCH. Mr. Chairman, I don’t want to abuse my privilege. 

Chairman WATT. I thank the gentleman, and the gentleman’s 

time has expired. 

The gentleman from North Carolina, my North Carolina colleague, is recognized for 5 minutes. 

Mr. MCHENRY. I thank the chairman, my colleague and friend 

and neighbor. 

Mr. LaCour-Little, can you discuss why borrowers have different 

rates? I think this is important in the context of this discussion. 

Mr. LACOUR-LITTLE. Of course, Congressman. The most important determinant of mortgage rates is, of course, the prevailing 

level of interest rates. But to that level, lenders add credit risk 

spreads to reflect factors such as the borrower’s credit score, the 

loan-to-value ratio with the particular product that’s been selected, 

the purpose of the loan, whether it’s a refinance or a home purchase loan. 

All of those factors have been shown to determine credit risk and 

default rates over time, so lenders add risk spreads, risk premiums, 

to the base rate to reflect those characteristics. 

And I should mention, too, Congressman, that if the loan is originated through a mortgage broker, that mortgage broker will also 

mark up the loan. 

25

And in some other research that I’ve done I find that loans originated through a mortgage broker cost consumers about 20 basis 

points more than loans originated directly by lenders. 

Mr. MCHENRY. But also the key point of that is underwriting 

standards. Is that correct, going to the cost of the mortgage? 

Mr. LACOUR-LITTLE. Well, underwriting really reflects the accept/reject decision, whether the lender is willing to make the loan 

or not, and then the pricing of the loan is a separate issue. HMDA 

data has traditionally been used, both to consider disparities in approval rates by race and ethnicity. And now, with the new pricing 

data, disparities in the incidence of higher cost or HMDA spreadreportable lending. 

Mr. MCHENRY. Now, are certain borrowers—within your research, have you found that certain borrowers are more willing to 

shop than others? Have you come to any conclusions on that? 

Mr. LACOUR-LITTLE. Well, that’s outside of the scope of the research that I did for this project. But I believe there has been research that suggests that lower income and lower credit scoring 

borrowers are less aware of the options available to them, and they 

may shop less diligently, and they’re just more vulnerable, as I 

think the committee recognizes. 

Mr. MCHENRY. And that goes to your mentioning of financial literacy— 

Mr. LACOUR-LITTLE. Yes. 

Mr. MCHENRY. —in some respects. 

Mr. Himpler, you said in your testimony, you discussed about numerous weighting differences within underwriting, within the 

mortgage industry, different companies have different weighting 

standards to find how they can be profitable with a certain type of 

mortgage and things like that. 

Can you explain to me this weighting system and how that gives 

a competitive advantage? This is something that we have not heard 

about too much before this committee. 

Mr. HIMPLER. Essentially, weighting refers to the types of considerations the different lenders give to different risk factors, particularly to credit score. As I mentioned in my testimony, there’s a 

FICO score. We also have the three credit bureaus that each have 

their own scoring system. 

A number of lenders will use one score from the Bureaus or 

FICO more weight than another, or a combination of the two, or 

an average, or the mean. 

In addition, a number of major lenders also have their own proprietary scoring system. They might use that in isolation or they 

might use that in combination with the Bureau’s scores. Their staff 

has essentially made the calculation that the weight that they give 

puts them at the best advantage to price the loan effectively, to 

serve the consumer best in terms of making access to credit loans 

most affordable. 

Mr. MCHENRY. And some level of assurance that they’ll be able 

to repay the loan. 

Mr. HIMPLER. Correct. 

Mr. MCHENRY. There has been a statistic that we’ve seen before 

the committee that it costs roughly $50,000 for the lender. A cost 

of $50,000 for every foreclosure. That’s nationwide. 

26

You know, a lot of discrepancies here within the testimony on 

your conclusions based on the data we have. 

Well, there’s an overall question within the mortgage industry 

that we need to ask, and I’ll do this in conclusion. If you all could 

simply answer, ‘‘yes’’ or ‘‘no’’ and maybe a sentence, but no more. 

And if we could start with Mr. Taylor. 

Do you think the disclosure statements that Congress mandates 

and the regulators mandate are effective at allowing consumers to 

understand the products they’re about to purchase? Meaning, 

would it be helpful if Congress put forward, for instance, a onepage disclosure statement, giving all the essence of a mortgage and 

what is necessary for all to know? Pre-payment penalties, percentage, interest rate, and things of those sort. 

You can just answer briefly. 

Chairman WATT. The gentleman’s time has expired, but I’ll allow 

each of the witnesses to answer very quickly. 

Mr. TAYLOR. I’m terrible at single sentences. 

[Laughter] 

Mr. TAYLOR. But I will say that it is very difficult for people to 

understand in the mortgage closing process all the details and data 

and information and documents, and that what needs to really 

occur is a system that creates responsibility on the part of the professional to ensure that the borrower understands what he or she 

is getting into and what all those documents mean and how it impacts them. 

I think that’s a sentence. 

Chairman WATT. Ms. Hamilton, I hope your sentence is shorter. 

Ms. HAMILTON. I think a clear Disclosure Statement that does 

not change at closing would also be something helpful to avoid the 

bait-and-switch tactics that we hear happen all the time. 

Mr. SHELTON. I agree with the same thing as both of the previous speakers—the need for more information, more disclosure. 

Mr. SOLORZANO. Same here. 

Mr. LACOUR-LITTLE. I think disclosures can certainly be improved, but I’d point out that these are very complex contracts, and 

improving them is not going to be a simple task. 

Mr. HIMPLER. The industry stands fully shoulder-to-shoulder 

with this Congress in wanting to make sure the borrowers understand the mortgage process that they’re about to undertake, so disclosure would be a good thing. 

Chairman WATT. I thank the gentleman. The gentleman’s time 

has expired. 

The gentlelady from New York is recognized for 5 minutes. 

Ms. MCCARTHY. Thank you, Mr. Chairman. I appreciate the testimony of everybody. 

As we’ve been hearing in the papers and on TV, we’re seeing 

more and more foreclosures coming forward. This morning on one 

of the news shows that deal basically with just business issues, we 

saw that the percentage of people making late payments has dramatically increased, even among those on the higher and middle incomes, and mainly because they brought or bought creative mortgages. 

27

What you have mentioned earlier, Ms. Hamilton, was talking 

about the mortgage brokers and how Boston or Massachusetts was 

looking on licensing. 

We’ve had that discussion on one of our other committees, mainly 

because if the State just does the licensing, that person can leave 

that State, and then go to another State and do the same harm in 

another part of the country that they might have done in your own 

State. So that’s something that we’re looking into, which I think is 

important for us to do. 

But, with that being said, I have several minority communities 

in my district, and in the majority of them, they don’t even have 

banks. That’s one of the things that we have been fighting for, to 

bring banks into the communities. 

So, with that, I mean with the mortgage brokers that are out 

there, or others, where are they steering my constituents to get 

their loans because we all have our problem with predatory rates. 

So anyone out there that wants to try to answer; I know there 

are three questions in there. 

Mr. TAYLOR. I will say this. I think you’ve tapped into a very, 

very critical thing and another part of the regulatory failure here, 

is over the last 3 decades, without much problem whatsoever, 

mainstream financial institutions have been able to close their 

branches in a lot of these neighborhoods. 

And, as Ginny Hamilton mentioned earlier, in Boston what we 

did is we actually worked, in fact, in concert with the Massachusetts Banker’s Association and with the regulators and others, and 

the banks, to try to get them to commit to open branches, because 

it really, really matters. 

Where you see some of the worst discriminatory practices, in 

those areas where there isn’t the kind of mainstream full service 

access that is brought by a financial institution, part of the exam, 

the CRA exam of banks, 25 percent of their grade is what’s called 

the service test. 

Primarily, what is the history of opening and closing branches in 

underserved neighborhoods. It’s not a fact by the—it’s not something they really—and they’re not going to like this, but it’s not 

something they really look at, because these banks are able to close 

their branches willy-nilly, and is having a real disparate impact on 

neighborhoods in terms of not just whether they’re subprime or 

predatory loans but basic banking services to having them come 

from check cashers, pawn shops, and payday lenders, instead of full 

service branches. 

So this is a critical issue. I think it’s important for all of America 

that the mainstream financial institutions that will treat people 

more decently, at least historically, than some of these other actors, 

that they need to be back in these communities. 

And what we need to do is to influence the regulators and create 

laws to make sure that they’re profitable and competitive in these 

communities. 

Mr. HIMPLER. Ms. McCarthy, if I may, you mentioned at the outset the articles you have been seeing or the TV reports for default 

in payments. We recognize that’s a very real issue. I’d be remiss 

if I did not implore this committee, as we see these reports come 

in, that the committee exercise restraint. 

28

The regulators that you’ll hear from on the next panel issued 

non-traditional mortgage guidance last year that tightened up credit. More recently, they have issued a statement on subprime to 

their examiners that calls for underwriting loans at a fully-indexed 

rate. 

They are doing the right things. We ask that you give the regulators time to see how that plays out. 

The last thing that we need, as an economy, is to tighten liquidity further when folks, like your constituents, are facing defaults 

and an increased possibility of foreclosure. 

Ms. MCCARTHY. I agree with you. But, I mean, we did have a 

hearing on this, and, you know, we met with a number of the bankers and everything and, certainly to their own, they want to make 

sure their reputation is out there. They don’t want to go into the 

business of foreclosure. And, as far as the economy goes, I mean, 

this is going to hurt us into the year 2009, they’re saying now. 

We had the first wave. They’re afraid about the second wave, 

which is actually starting sooner, I think, than everybody even 

thought. 

So I think I go back to what Mr. Taylor had mentioned. It would 

be in the best interest of the financial institutions, the banks, to 

come into the communities to make sure that good packages are 

being put into those particular communities. They should have 

been regulating, or even bringing it up, about these specialty mortgage brokers, and I’ll even say that to the regulators. 

They knew this was going on. Why did they wait so long to step 

forward to say, ‘‘Hey, we’re going to take care of this.’’ It’s a little 

bit too late for an awful lot of people. 

Ms. MCCARTHY. I yield back the—Ms. Hamilton? 

Ms. HAMILTON. I just want to share a quick story from one of the 

actual test incidents as we did, where we had an African-American 

tester go into a prime bank, a mainstream bank, and the bank representative told her that the bank usually dealt with commercial 

lending and did not really provide residential mortgages, and as 

part of other information, including—even though her credit score 

was good, that closing fees would be $8- to $9,000 for the loan she 

was looking to make. 

Two days later, the white tester, with a lower credit score, was 

told by the same bank that they provided home mortgage loans and 

was immediately given information about how she could work with 

them. 

So certainly, the locations and the CRA work are important, but 

it doesn’t stop the discrimination from happening unless we’re looking at the discriminatory behavior happening in incidences. 

And those are real people, real people who are discouraged by 

that interaction, and, therefore, more likely to go to another broker 

who’s going to tell them, ‘‘Sure, I’ll give you a great deal, your credit score’s wonderful.’’ 

Chairman WATT. The gentlelady’s time has expired. 

This is an extremely important issue that has substantial implications in a number of communities around the country. And, for 

that reason, I’m pleased to welcome to the subcommittee’s hearing 

three members who are not on the subcommittee itself, two of 

29

whom are on the full Financial Services Committee, but do not 

serve on the subcommittee. 

And I’m pleased to ask unanimous consent that they be allowed 

to ask questions. Without objection, I will then recognize Mr. Green 

for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank the witnesses for appearing today. 

Let me start by indicating that there’s a term called ‘‘voir dire’’ 

or ‘‘voir dire,’’ depending on where you’re from. In Texas, we say 

‘‘voir dire.’’ It is a French term, and it means to speak the truth. 

And I have found that it is very helpful to approach large numbers 

of persons with the process that we use in ‘‘voir dire’’ or ‘‘voir dire.’’ 

So I’d like to ask questions to you as a panel, and that way I can 

get more answers within a shorter period of time. 

Let me start with something that I believe to be the case, but 

because I have friends that I have debated with through the years 

and did not ask early on what their position was, I found that I 

was entirely wrong, and, as a result, I should have been debating 

another point. 

So let me start with the question, does everyone agree that invidious discrimination exists in lending? If you agree, would you kindly extend the hand into the air? 

[Hands raise] 

Mr. GREEN. Okay. You may lower your hands. 

Now, let’s go to the very end. Mr. Himpler, you do not agree that 

invidious discrimination exists in lending? 

Mr. HIMPLER. I think that it’s—you can’t argue that there are no 

incidents of discrimination. I’m not sure that I would characterize 

the entire lending system, as— 

Mr. GREEN. Let me continue, and let’s agree that we’re not talking about all lenders, but that it exists in lending institutions to 

the extinct that it is abhorrent and ought to be eliminated. Do you 

agree that invidious discrimination exists? 

Mr. HIMPLER. That there are incidents of invidious discrimination? 

Mr. GREEN. Yes, sir. 

Mr. HIMPLER. I would agree with that. 

Mr. GREEN. And let me go quickly to Mr. LaCour-Little. 

Do you agree? I didn’t see your hand go up. 

Mr. LACOUR-LITTLE. Yes. Certainly— 

Mr. GREEN. Could you bring that microphone closer, please? 

Mr. LACOUR-LITTLE. Yes. Certainly individual instances of disparate treatment are an important concern. 

Mr. GREEN. For edification purposes, invidious discrimination is 

actionable discrimination, that which one can be sued for in the 

context that we are talking about today. 

Do you agree that kind of discrimination exists in lending? 

Mr. LACOUR-LITTLE. There certainly could be individual cases 

that— 

Mr. GREEN. You said, ‘‘could be,’’ so I assume that you’re not—

you don’t have the empirical data, but your suspicions are that it 

may not exist if you say, ‘‘could.’’ 

30

Mr. LACOUR-LITTLE. That’s not my focus, Congressman. As a 

professional economist, I look at aggregate patterns and data, and 

I don’t see aggregate evidence. 

Mr. GREEN. Do you agree that some exist? 

Mr. LACOUR-LITTLE. I agree that there could be individual— 

Mr. GREEN. Could be. 

Mr. LACOUR-LITTLE. There may be. 

Mr. GREEN. All right. Was there someone else who did not extend their hand? If so, raise your hand now. 

All right, sir. Do you agree that invidious discrimination exists? 

Mr. SOLORZANO. Yes, I do agree. 

Mr. GREEN. Okay. Thank you. 

Mr. SOLORZANO. I was too slow to raise my hand. 

Mr. GREEN. Okay. 

It’s important to understand this because when you get a better 

understanding of where people are, you get a better understanding 

of where the debate really is. 

And now, I’ll have to use just a bit of my time to explain something that I probably shouldn’t have to explain. But I heard this 

commercial recently that indicated that a certain thing that took 

place took more than an act of Congress. It took our Congress willing to act. 

And many things take weight power, but they also require willpower. And to have the willpower to do something necessarily, one 

must conclude that something must be done. So if you don’t conclude that there is a need to do something, then there’s a good likelihood that you won’t be about the business of doing whatever it 

is that others may see as needing to be done. 

With this said, to the economist, I would ask, sir, do you believe 

that we can construct an acid test, that we shall call HMDA data, 

an acid test that will reveal whether or not invidious discrimination exists? 

Mr. LACOUR-LITTLE. Well, Congressman, I think it’s not related 

to HMDA data, but I think the sort of matched pair testing that 

the witness from Boston— 

Mr. GREEN. Let me just say this, if I may quickly. 

Mr. LACOUR-LITTLE. Yes. 

Mr. GREEN. There are many occasions when persons have finished, and I don’t know whether they have said ‘‘yes’’ or ‘‘no.’’ So 

let me just ask you this way: Yes or no, sir; can we construct an 

acid test so as to indicate to us whether or not invidious discrimination exists? Can such a test be constructed? 

Mr. LACOUR-LITTLE. Not using HMDA data. 

Mr. GREEN. Well, let’s not call it HMDA. A rose by any name 

smells just as sweet as far as I’m concerned. 

Whatever—by whatever name can an acid test be constructed 

such that we can determine whether invidious discrimination exists 

in lending? 

Mr. LACOUR-LITTLE. Again, I believe that the matched pair testing of the type described by Ms. Hamilton is— 

Mr. GREEN. Would that— 

Mr. LACOUR-LITTLE. —the best approach. 

Mr. GREEN. —would that be testing? Is that right? 

Mr. LACOUR-LITTLE. Yes. 

31

Mr. GREEN. Okay. Now, let’s talk about the— 

Chairman WATT. Unfortunately, the gentleman’s time has expired. 

Mr. GREEN. Can I get one additional question, Mr. Chairman? 

Chairman WATT. I ask unanimous consent for one additional 

minute for the gentleman. 

Mr. GREEN. Okay. You are aware that to perform the testing of 

which you speak, we would have to change the Federal law because 

you cannot file applications for testing beyond the pre-application 

phase, which means that we’re now back to something that ought 

to be done, that can’t be done, because Federal law prohibits it 

from being done. 

And perhaps I won’t ask a question. I’ll just leave you with that 

comment. 

Thank you, Mr. Chairman. You were more than generous. 

Chairman WATT. Thank you very much for participating in this 

important hearing. 

The gentleman from California, Mr. Baca, who chairs the Congressional Hispanic Caucus, is recognized for 5 minutes. 

Mr. BACA. Well, first of all, thank you very much, Mr. Chairman, 

for having this important hearing and for your leadership of one 

an equality and fairness in this area, because we need to wipe out 

mortgage discrimination and predatory lending once and for all, 

and we must do more to protect our families. And thank you, you 

know, for being a leader there. 

I’d like to address a couple of things, not only as chair of the 

Congressional Hispanic Caucus, and a member of this committee, 

but, according to the 2005 HMDA data, 52 percent of AfricanAmericans and 40 percent of Latinos are in high-cost subprime 

loans compared to 19 percent of whites. 

For Hispanics, almost 20 percent who receive high interest, 

subprime loans, are likely to go into foreclosures, and data shows 

that 73,000 out of 375,000 subprime loans made to Hispanics in the 

year 2000 are more likely to end in foreclosure. In my district 

alone, the foreclosure rate is 3 times higher than it was just 1 year 

ago. 

And, for the record, I’d like to enter this newspaper article that 

came out by the Riverside press, ‘‘Inland default notices see sharp 

rises.’’ It’s alarming to us when we have the largest growth, we 

have the biggest attractions, and we have the housing development, and everybody is moving into the Inland Empire, both San 

Bernardino and Riverside, yet there are high numbers that we see 

in terms of foreclosures. 

I’d like to ask my first question to Mr. Shelton. Can you talk 

about some of the studies that have been based on HMDA that 

show racial discrimination in predatory lending? 

Mr. SHELTON. Yes. Let me just say that the study that we found 

to be most enlightening was the study by the Center for Responsible Lending, entitled, ‘‘Unfair Lending: The Effects of Race and 

Ethnicity on the Price of Subprime Mortgages.’’ 

This is a study that was done May 31, 2006, and, of course, was 

based on 2004 HMDA data. It clearly pointed out that racial discrimination is very much a part of the landscape. 

32

There are a couple of other studies I think will be very helpful 

for the community to consider. 

The National Community Reinvestment Coalition has a study entitled, ‘‘Income is No Shield Against Racial Differences in Lending,’’ 

dated July 2007. And this uses 2005 HMDA data as well, clearly 

establishing the same point, that, indeed, racial discrimination occurs in the lending process. 

The last two I would just throw out for your consideration. A 

study by Calvin Bradford for the Center for Community Change, 

called ‘‘RISK’’ or ‘‘Race,’’ which was done in 2003. 

And a study by ACORN in 2004, called, ‘‘Separate and Unequal 

Predatory Lending in America, 2004,’’ was also published in 2004. 

Each of these studies points to the same conclusions, that, indeed, based on HMDA data, we’re able to establish that, indeed, 

discrimination occurs in the lending field, home mortgages, across 

the board, particularly looking at African-Americans and Latinos. 

Mr. BACA. Thank you for your testimony. 

The next question I have is for Ms. Hamilton. 

In your lending testing described in ‘‘The Gap Persists,’’ what 

type of discrimination did you find against Latinos, and what did 

your organization do to follow up on the discrimination you found? 

Ms. HAMILTON. For the test, we conducted five pairs matching a 

Latino tester and a non-Hispanic white tester. In two of those, we 

found evidence of discrimination. 

Differences included different quotes on the monthly payments 

they would have, also giving more information to the white tester 

about all of the costs involved in the process, and different advice 

about how to work with better loan products when you have a midrange credit score. 

The white loan seeker also got a lot of informational literature 

about the products and follow up e-mail information, whereas a 

Latino loan seeker didn’t receive any of that information. 

In the second case, we saw—this was at a bank rather than a 

mortgage company, and the white home seeker was told about 

more loan products, was encouraged to submit an application as 

soon as possible, and there was no application conversation with 

the Latino home seeker. 

Again, the white home seeker was given lots of pamphlets about 

different mortgage products, a guidebook about mortgages, a work 

sheet for calculating mortgage costs, and the application, and the 

Latino home seeker was sent away with none of this information. 

Mr. BACA. One final question that I have: How do you think that 

the Federal banking regulators and the Federal enforcement agencies could make more of an impact in fighting discrimination 

against Latinos and other protected classes? 

Ms. HAMILTON. I think the data that is here, the cases that have 

been referred by the Feds, should be aggressively investigated. 

They should be looking at that data, looking at those files, and 

partnering with Department of Justice, HUD, and HUD-funded 

agencies, such as my own, that do testing, to use testing as part 

of the process to see whether or not the behavior in the banks towards actual loan seekers spells out what the data is showing. 

Mr. BACA. And plus more accountability from us in Congress to 

hold them accountable, of course, right? 

33

Ms. HAMILTON. Of course. 

Mr. BACA. Okay. Thank you. 

Chairman WATT. The gentleman’s time has expired. 

The chairman recognizes the gentlelady from Texas, Ms. Jackson 

Lee. 

Ms. JACKSON LEE. Mr. Chairman, let me thank you. I am a total 

guest. In as much as I am not a member of the full committee, let 

me thank the chairman of the subcommittee, Mr. Watt, and, of 

course, the ranking member for their generosity. 

I was confronted this morning by the same news that continues 

to ascend to, I think, the crisis level, which is, don’t think you can 

rest on your laurels. These foreclosures will continue into 2009. 

That’s a long period of time to watch the mountain collapse, probably the number one asset of most Americans, and that is their 

home. 

Coming from Houston, Texas, we have been on this cycle before, 

but it was economic. When the energy industry crashed in the 

1970’s, we saw the massive walk-away of people who only wanted 

to have the American dream and to have a job. But the industry 

collapsed. 

I saw the same kind of spiraling disappointment in the massive 

surge of effort to reform the bankruptcy laws, to, unfortunately, 

after 7 years of fighting, we lost the battle. And I have heard from 

not only bankruptcy lawyers but individuals who are in the Bankruptcy Court, but bankruptcy judges, who said that that legislation 

had enormous negative impact on people being able to retain their 

assets. 

Let me give two themes that have been used. 

Generally, all money is green, and the privileges of due process. 

We all have a right to know our rights. 

And I notice, Mr. Taylor, in your comments, the interesting thing 

is the lending disparities for African-Americans were large and increased significantly as income levels increased. 

That looks like the most attractive person that you could ever 

have. Here comes someone with a check, with money, with debt. 

Hispanics also experience greater disparities in high-cost lending 

compared to whites as income levels rose. 

I’m not going to go to you first, but I am going to ask the distinguished gentleman, Mr. Himpler, at the end, to ask the question, 

as this committee moves forward, they will have the legislative jurisdiction. 

And we see the improvements that came after the Community 

Reinvestment Act, but we’ve seen some diminishing of its power. 

Would you welcome racial factors and racial criteria that the 

lending entities would have to meet based upon this preliminary 

data, and it is research by non-governmental entities. But would 

you welcome the fact a cure for what seems to be an obvious and 

conspicuous discrimination? 

Not that someone would have to go and file a lawsuit, but would 

you welcome the industry, this particular home-lending industry, 

this component of the financial services industry, to have to use 

and have to be tested and have to assess racial criteria, how many 

loans they gave, what kind of loans they gave based on race, age, 

34

and African-American, Hispanic, and if there are other distinctive 

groups, Native American. 

Mr. HIMPLER. Well, Congresswoman, with respect to the example 

you cited with different borrowers with different incomes, with minority borrowers with higher incomes ending up with higher interest rates, it gets back to a very basic point in my testimony earlier, 

that the HMDA data does not contain credit information. Our lenders do not make credit decisions based on income alone. 

At the same time, that begs the question, I understand, of why 

not to include credit risk information. 

Ms. JACKSON LEE. And since my time is short, my question is, 

there are high income that get discriminated against, therefore, it 

seems obvious on the face it’s race. Would you welcome that additional indicia that you have to report on, rejecting a high income 

person of a different race? 

Mr. HIMPLER. I think to a large extent the data set that we report under HMDA, that ultimately goes to the regulators, was put 

to that test through the examination process. 

Ms. JACKSON LEE. Mr. Taylor, can you more—thank you very 

much—refine—give me a more refined answer. 

Can we work with those parameters? We seem to have high income persons. That’s a good litmus test. 

Mr. TAYLOR. Right. 

Ms. JACKSON LEE. When we send the low income folk in, somebody has an excuse. High income, they are discriminated against. 

How can we solve that? And I know there’s a list of criteria. 

Mr. TAYLOR. We need more sunshine in this area. I mean, what’s 

odd about this conversation, to me, is they say, well, HMDA doesn’t 

quite show that there’s discrimination. Then we say, all right, well, 

let’s get the data that shows whether it exists or not. And then, 

through discovery, you can go through the process of court cases 

that really reveal what’s really going on. But they don’t want to do 

that, and they don’t want to do that because they—we all know 

why they don’t want to do that. 

And I liked the distinction you brought about in Texas, and especially in Houston. You’ve been through this before. But what happened in those foreclosures is that people lost their income. 

Ms. JACKSON LEE. They lost their income. 

Chairman WATT. The gentlelady’s time is expired. 

Mr. TAYLOR. Does that mean my time is? 

Chairman WATT. Finish your answer. 

Mr. TAYLOR. Okay. See, they had the foreclosures, and this is an 

important thing for us. The foreclosures are primarily relating to 

a change in product, not a change in income. And that ought to 

give people pause for concern. 

We have a vibrant mortgage system, but it’s not as vibrant as 

it used to be. Wall Street is shaking from these mortgage backed 

securities and CDOs that are absolutely causing havoc on the market. 

If we don’t recognize that we need to do something for the good 

of all of America to change the system, to make it more accountable, to make it fairer, and to ensure that people are able to stay 

in their homes, we’re going to have this problem again in the future. 

35

Ms. JACKSON LEE. I thank the chairman and I thank the witnesses. 

Chairman WATT. And I thank the members for their attention, 

both members of the subcommittee and members who are not on 

the subcommittee. 

I thank the panel of witnesses for your testimony and for being 

responsive to the questions. I think you have helped to frame this 

discussion in a way that helps us going forward to the second 

panel. So let me express the thanks of the subcommittee and ask 

the second panel to come forward. 

Mr. TAYLOR. Thank you, Mr. Chairman. 

Chairman WATT. If we could encourage those in the audience to 

conclude their conversations so that we could move to the second 

panel, that would be most appreciated. 

I would like to start by thanking the members of the second 

panel for being here. I know it is somewhat out of the ordinary to 

reverse the order of the panels, but we thought we would try it to 

try to frame some of the issues that are being raised so that you 

could more effectively talk about those issues and perhaps get to 

a constructive set of responses. 

So we thank you, especially those of you who came and heard the 

first panel. We gave you the option of not having to do that if you 

chose not to, so as not to take up your time, but I think most of 

you were here, and I’m most appreciative of you doing that, and 

even more appreciative of your being here to testify. 

I will now introduce the members of the second panel: 

We have Ms. Sandra Braunstein, Director of the Division of Consumer and Community Affairs of the Board of Governors of the 

Federal Reserve Board; Ms. Sandra L. Thompson, Director of the 

Division of Supervision and Consumer Protection, Federal Deposit 

Insurance Corporation; Ms. Montrice Yakimov, Managing Director, 

Compliance and Consumer Protection, Office of Thrift Supervision; 

Mr. David M. Marquis, Director of the Office of Examination and 

Insurance, National Credit Union Administration; Mr. Calvin R. 

Hagins, Director for Compliance Policy, Office of the Comptroller of 

the Currency; Ms. Grace Chung Becker, Deputy Assistant Attorney 

General, Civil Rights Division, U.S. Department of Justice; Ms. 

Kim Kendrick, Assistant Secretary, Office of Fair Housing and 

Equal Opportunity, U.S. Department of Housing and Urban Development; and Ms. Lydia Parnes, Director of the Bureau of Consumer 

Protection, Federal Trade Commission. 

I thank you on behalf of the subcommittee. 

And before I recognize Ms. Braunstein, let me ask unanimous 

consent to submit for the record questions to these witnesses, asking them about various enforcement practices and efforts that they 

have made in this area, and I will ask unanimous consent to submit your responses for the record so that you won’t necessarily 

have to go in detail over all of the things that you’ve said. 

And I’ll remind you—and without objection, these will be submitted for the record. 

Also, without objection, your full written statements will be submitted for the record. And we would, therefore, ask you to summarize your testimony in 5 minutes or so, as we asked the first panel 

to do. 

36

Again, there will be a yellow light that comes on at 4 minutes, 

and a red light that comes on at 5 minutes, so we would ask you 

to wrap up at that point, as expeditiously as you can. 

Ms. Braunstein is recognized for 5 minutes. 

STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER AND COMMUNITY AFFAIRS, BOARD OF 

GOVERNORS OF THE FEDERAL RESERVE BOARD 

Ms. BRAUNSTEIN. Thank you. 

Chairman Watt, Ranking Member Miller, and members of the 

subcommittee, I am pleased to appear before you to discuss the 

Board’s efforts to promote fair lending. 

It is widely known that there are racial and ethnic gaps in the 

availability and price of mortgage credit. In mortgage lending, 

these gaps have been highlighted by the Home Mortgage Disclosure 

Act, or HMDA data, including pricing data required by the Board’s 

regulation. 

Like racial and ethnic disparities in income, education, employment, and health care, gaps and access to credit have long presented our society with moral, legal, social, and economic challenges. 

The Federal Reserve shares concerns that credit gaps may result 

in part from illegal discrimination, and we vigorously enforce compliance with fair lending laws. 

The Board has a long-standing commitment to ensuring that 

every bank it supervises complies fully with the fair lending laws. 

We have made consumer compliance supervision, including fair 

lending, a distinct function in the Reserve banks and at the Board, 

including specialist examiners and a separate report of examination. 

When conducting fair lending examinations, our consumer compliance examiners perform two distinct functions. 

First: Examiners evaluate the bank’s overall Fair Lending Compliance Program to ensure that management is committed to fair 

lending and has put in place the appropriate systems, policies, and 

staff to prevent violations. 

Second: Examiners determine if the bank has violated the fair 

lending laws. If we have reason to believe that there is a pattern 

or practice of discrimination under the Equal Opportunity Act, the 

Board, like other Federal banking agencies, has a statutory responsibility under the Act to refer the matter to the Department of Justice, or DoJ, which reviews the referral and decides if further investigation is warranted. 

A DoJ investigation may result in a public civil enforcement action or settlement. The DoJ may decide, instead, to return the matter to the Federal Reserve for administrative enforcement. When 

this occurs, we ensure that the institution corrects the problems 

and makes amends to the victims. 

We take our responsibility to refer matters to the DoJ seriously. 

In the first 6 months of this year alone, we referred five institutions after concluding that we had reason to believe they engaged 

in a pattern or practice of discrimination. 

Two of those referrals involved ethnic and racial discrimination 

in mortgage pricing by nationwide lenders. One referral involved 

37

racial discrimination in the pricing of automobile loans. One referral involved discrimination against unmarried people. And one referral involved an institution with two loan policies prohibiting 

lending on Native American lands, and the other policy restricted 

lending on row houses, which resulted in discrimination against African-Americans. 

Last year we referred four institutions to the DoJ for issues, including pricing discrimination in auto lending, mortgage red-lining, 

and age discrimination. We referred an additional five matters in 

2004 and 2005. 

The Federal Reserve conducted targeted reviews of institutions 

for pricing discrimination when the HMDA pricing data first became available in 2005. 

As a result of these reviews, as I previously mentioned, we referred nationwide lenders to the DoJ for mortgage pricing discrimination. 

Additionally, these reviews have reinforced several important aspects of fair lending supervision and enforcement. 

First: HMDA data are most helpful as a fair lending tool when 

they are used in conjunction with other risk factors and supervisory information to identify institutions that warrant closer review. In particular, our referrals have confirmed that pricing discretion and incentives to charge more remain significant fair lending risks. 

Second: To be accurate, our reviews need to be based on an institution’s specific pricing policies and product offerings. 

Third: It is important to test separately for discrimination in different geographic markets. A lender may have relatively small, unexplained pricing disparities across the Nation as a whole but still 

discriminate in some distinct geographic markets, such as individual MSAs. 

The Federal Reserve is committed to addressing racial and ethnic 

gaps in availability and affordability of credit. With our supervisory 

and enforcement authority, we ensure that the banks we supervise 

comply fully with the fair lending laws and take strong action in 

the rare cases when they do not. 

We are pleased to have this opportunity to work with you to ensure the consumer credit markets are free from illegal discrimination. 

[The prepared statement of Ms. Braunstein can be found on page 

76 of the appendix.] 

Chairman WATT. Thank you, Ms. Braunstein, for your testimony. 

Ms. Thompson is recognized for 5 minutes. 

STATEMENT OF SANDRA L. THOMPSON, DIRECTOR, DIVISION 

OF SUPERVISION AND CONSUMER PROTECTION, FEDERAL 

DEPOSIT INSURANCE CORPORATION 

Ms. THOMPSON. Chairman Watt, Congressman Miller, and members of the subcommittee, I’m the Director of Supervision and Consumer Protection for the FDIC. In this role, I oversee the Agency’s 

bank supervision activities, which include both safety and soundness and compliance with consumer protection and fair lending 

laws. 

38

I appreciate the opportunity to testify today on behalf of the 

FDIC to discuss enforcement of fair lending laws and our use of 

Home Mortgage Disclosure Act data to uncover illegal discrimination. 

The FDIC does not tolerate credit discrimination in the banks we 

supervise. We examine institutions for their compliance with fair 

lending laws regardless of whether they report pricing data under 

HMDA, and fair lending exams are conducted in conjunction with 

each scheduled compliance examination. 

HMDA data is an important component of fair lending examinations and provides examiners with valuable information about a 

bank’s mortgage loan products and its lending practices. 

Even if a bank is not required to report HMDA data, all banks 

must retain the information mandated under HMDA. This is particularly significant for the FDIC because many of the banks we 

supervise are small banks, and they are not subject to HMDA reporting requirements, either because their assets are below the 

thresholds for HMDA filing or the banks are located in a rural 

area. 

Slightly more than half of the banks supervised by the FDIC are 

HMDA data reporters. However, while the other half of our banks 

are not required to report HMDA data, they still undergo a fair 

lending examination where FDIC examiners carefully review 

HMDA data to look for evidence of discriminatory lending. 

In addition to providing important information for fair lending 

exams, the HMDA pricing data is useful for targeting disparities 

that require further review. 

When the HMDA data indicates the possibility of discriminatory 

pricing, the FDIC focuses special attention on the institution. Examiners review individual loan files and they conduct additional 

statistical analysis. 

Examiners also consider the presence of employee or broker discretion and pricing decisions and the relationship, if any, between 

loan pricing and compensation of loan officers or brokers. 

When we discover fair lending violations, in all cases, the FDIC 

requires the banks to take immediate corrective action. The corrective action may vary in each case, but the goal is to ensure that 

the practice is stopped and that any victims are identified and receive appropriate remedies. 

In addition, since 2004, the FDIC has taken 53 enforcement actions. Let me emphasize that the FDIC can and does require the 

bank to take corrective action even before a case is referred to the 

Department of Justice. 

The FDIC is currently reviewing all cases involving possible discriminatory practices that have been referred to the Department of 

Justice for appropriate enforcement action. We intend to pursue 

these cases aggressively and to move forward in a timely manner. 

In conclusion, the FDIC takes very seriously our responsibility to 

protect consumers and enforce the fair lending laws. 

We will continue to work to assess our supervisory practices in 

order to identify fair lending violations and maximize the value of 

the HMDA data. 

Thank you for the opportunity to testify, and I look forward to 

answering any questions. 

39

[The prepared statement of Ms. Thompson can be found on page 

279 of the appendix.] 

Chairman WATT. Thank you, Ms. Thompson, for your testimony. 

I will now recognize Ms. Yakimov for 5 minutes. 

Ms. YAKIMOV. Thank you. 

STATEMENT OF MONTRICE GODARD YAKIMOV, MANAGING DIRECTOR, COMPLIANCE AND CONSUMER PROTECTION, OFFICE OF THRIFT SUPERVISION 

Ms. YAKIMOV. Good afternoon, Chairman Watt, Ranking Member 

Miller, and members of the subcommittee. 

Thank you for the opportunity to discuss the Office of Thrift Supervision’s fair lending program. 

Three pillars form the basis of our approach to fair lending compliance and enforcement. A rigorous and regular exam program, 

ongoing initiatives to ensure appropriate resources and attention 

are devoted to fair lending compliance and enforcement, and setting forth clear supervisory expectations relating to compliance 

with fair lending laws and all consumer protection statutes for the 

institutions we regulate. 

OTS examiners conduct a fair lending assessment during each 

comprehensive safety and soundness and compliance exam, which 

occur every 12 to 18 months, depending on the institution’s asset 

size. 

In addition, our examiners conduct targeted fair lending reviews 

when an evaluation of an institution’s HMDA data, or other factors 

suggest potential fair lending concerns. 

OTS utilizes interagency exam procedures, which require all examiners to evaluate savings associations for various indications of 

discrimination, including potential discrimination in pricing, underwriting, steering, and red-lining. 

Because the HMDA data include valuable information, but not 

all the factors needed to determine fair lending compliance, OTS 

examiners consider additional information about a lender’s practices before reaching conclusions. 

Institutions identified as requiring additional analysis due to the 

HMDA data, or other issues, are asked to provide supplemental information, such as credit scores, debt-to-income ratios, loan-tovalue ratios, the extent of discretionary pricing, and related factors. 

If unlawful discrimination is found, the institution is referred to 

the Department of Justice or HUD in accordance with Federal fair 

lending laws. Depending on the outcome of the referral and the nature of the violation, OTS also takes action to resolve the matter 

fully. 

For example, as a result of routine and targeted fair lending reviews at institutions whose 2004 and 2005 HMDA data revealed 

potential fair lending concerns, OTS directed several institutions to 

take steps to strengthen their fair lending compliance program, including expanding fair lending training to employees, enhancing 

monitoring systems for brokers and correspondence, and implementing more detailed underwriting standards to better ensure 

compliance with fair lending laws. 

In addition to these steps, OTS has also undertaken 10 enforcement actions, including the Equal Credit Opportunity Act, and 9 

40

actions involving HMDA since January 1, 2004. These cases have 

resulted in three cease and desist orders and civil money penalties, 

totalling approximately $118,000. 

Pillar two of our fair lending program involves an ongoing evaluation of the resources we allocate to this critical area. As of June 

30th, OTS employed 556 examiners, specialists, and managers. Our 

examiners and managers are cross-trained in both safety and 

soundness and consumer compliance. 

However, our cadre of examiners and managers includes a team 

of 65 specialists with advanced knowledge and expertise in fair 

lending laws and regulations. 

In 2006, we hired 80 new examiners, and we’re in the process of 

hiring an additional 40 more. 

We have also created five new complaint examination specialist 

positions, one in each of our regional offices, again, to buttress our 

resources in this critical area. 

The third pillar I will discuss and close with involves the commitment of OTS to ensure that the entities that we regulate understand our supervisory expectations, relating to the laws and regulations that broadly apply to them, and that we consistently apply 

these standards to all segments of the industry we regulate. 

Consistent with this commitment to provide clarity, OTS is developing an advance notice of proposed rulemaking that will seek 

comment on various issues involving unfair or deceptive acts and 

practices, including various approaches and models OTS could use 

in connection with such a rulemaking. 

Our goal is to solicit public comment on whether and how the 

OTS should expand its current prohibitions involving unfair acts or 

practices, and to provide greater clarity regarding how we will 

make UDAP determinations going forward. 

I will close by reiterating that OTS is committed to fair lending 

examination and enforcement. It is the core of our mission. 

I appreciate the opportunity to join you today to describe OTS 

initiatives in this critical area. 

[The prepared statement of Ms. Yakimov can be found on page 

301 of the appendix.] 

Chairman WATT. Thank you so much for your testimony. 

Mr. Marquis is recognized for 5 minutes. 

STATEMENT OF DAVID M. MARQUIS, DIRECTOR, OFFICE OF 

EXAMINATION AND INSURANCE, NATIONAL CREDIT UNION 

ADMINISTRATION 

Mr. MARQUIS. Thank you for this opportunity to testify today regarding NCUA oversight of consumer laws pertaining to mortgage 

lending and housing. I am the director of examination and insurance, and I’m responsible for the exam program at NCUA. 

This is a timely and important subject that merits congressional 

oversight. I commend you for your interest in rules available to 

help consumers with what is arguably the most important purchase they’ll ever make—their home. 

NCUA places a priority on ensuring credit unions comply with 

all non-discrimination laws and works to protect consumers against 

discrimination of unfair home mortgage lending practices. 

41

NCUA enforces fair lending laws through a comprehensive examination process and HMDA data. Approximately 2,300 credit 

unions filed HMDA data in 2005. Combined with a careful review 

of member complaints, NCUA is able to evaluate each credit 

union’s compliance with the law in gaining a more complete picture 

of how a credit union makes mortgage loans. 

As of 2006, just over 5,600 insured credit unions—federally insured credit unions—made mortgage loans comprising approximately 2 percent of the mortgage market. 

With those credit unions subject to HMDA, NCUA works closely 

with the credit unions to ensure timely filings. NCUA issues regulate alerts periodically on this and other consumer protection compliance issues. 

With regard to timely HMDA filings, NCUA noted disappointing 

trends and began assessing civil money penalties against late filers; 17 penalties were assessed in 2005 and 22 in 2006. 

NCUA adopted the fair lending exam procedures developed jointly by the FFIEC in 2000. These rigorous new standards enabled 

NCUA to more effectively allocate resources devoted to oversight of 

fair lending practices. 

NCUA also evaluates fair lending compliance as part of its riskfocus examination. Compliance is one of 7 risk areas considered by 

our 45 examiners during this overall assessment of an institution’s 

safety and soundness. 

If a violation is noted, it is documented in the Agency’s compliance data base, and the examiner communicates corrective action 

to be taken. 

Separate from the normal examination, NCUA has 25 examiners 

devoted to fair lending compliance. 

NCUA selects credit unions for failing the examination based on 

factors such as the HMDA data, member complaints, and the complexity of lending programs offered by Freddie Mac. Freddie Mac 

union members have several avenues through which to facilitate 

the handling of consumer complaints about possible discrimination 

and home mortgage lending. 

NCUA maintains a 1–800 consumer helpline and an Internet 

site, but, in addition to receiving complaints by mail, which continues to provide the greatest amount of consumer input in this 

area. 

NCUA encourages the resolution of consumer complaints at the 

credit union level first. NCUA initially directs the credit union to 

investigate the complaint, inform NCUA of the results of the investigation, and resolve the matter according to applicable laws and 

regulations. 

The Federal Credit Union Act requires each Federal credit union 

to have a supervisory committee, which ensures independent oversight of the credit union’s board of directors and advocates the best 

interest of its members. All supervisory committee members are 

volunteers, and they are the first responders in investigating member complaints. 

It is important to know, however, that NCUA reviews supervisory committee recommendations and actions, and follows up 

with the complainant to ensure that the matter is properly resolved. 

42

Corrective actions can include letters of understanding and 

agreement, which reflect a credit union’s CAMO rating, to cease 

and desist and civil money penalties. 

Our experience is that the overwhelming majority of member 

complaints stem from poor communication between the credit 

union and the member or misunderstanding of the credit union’s 

lending policies. 

As a result, virtually all complaints are resolved after the NCUA 

directs the credit union to address the complaint with the member. 

NCUA continues to refine this method in overseeing industry 

compliance with Federal lending laws. Examiner training has become more sophisticated and has resulted in a better understanding of lending activity in specific geographic areas, as well as 

a heightened awareness about how to detect discrimination. 

In addition, NCUA constantly urges the credit union industry to 

promote financial education to credit union members and participate in industry compliance seminars and training in order to be 

more proactive in helping credit unions institute adequate compliance programs and oversight procedures. 

Credit union members are entitled to fair treatment, not just because the law says so, but because they are, in fact, the owners of 

these institutions. 

When their treatment is not fair and within the law, NCUA is 

there to step in and make certain that no member is subject to discrimination in any form or fashion. 

Thank you for listening, and I’ll be glad to answer questions 

later. 

[The prepared statement of Mr. Marquis can be found on page 

202 of the appendix.] 

Chairman WATT. Thank you for your testimony. 

Mr. Hagins, of the Office of the Comptroller of the Currency, is 

recognized for 5 minutes. 

STATEMENT OF CALVIN R. HAGINS, DIRECTOR FOR COMPLIANCE POLICY, OFFICE OF THE COMPTROLLER OF THE CURRENCY 

Mr. HAGINS. Thank you. Chairman Watt, Ranking Member Miller, and members of the subcommittee, I’m Calvin Hagins, the Director for Compliance Policy at the OCC. 

I’m pleased to be here with you to discuss the OCC’s commitment 

to ensuring compliance with fair lending laws. 

Let me begin by saying there is no room in the national banking 

system for illegal discrimination. I’ve been a national bank examiner for over 20 years, and I’ve participated in dozens of exams of 

fair lending during that time. 

I can assure you that the OCC is looking hard at fair lending and 

has not hesitated to take action when we’ve found evidence of illegal discrimination. The OCC has developed a supervisory approach 

that drills down into those institutions, markets, and loan products 

that appear at greatest risk for discriminatory practices. 

We rely heavily on the HMDA data to help us target our supervisory activities, but we also make use of consumer complaints, 

academic and community organization studies, and census bureau 

data for risk-screening purposes. 

43

We conduct targeted fair lending examinations to determine 

whether different outcomes and lending decisions are the result of 

unlawful discrimination. If we find that they are, we take appropriate steps to address the problem. 

Since 1993, we’ve made dozens of referrals of matters involving 

discrimination to the Department of Justice or HUD. These actions 

have resulted in several highly-publicized multi-million dollar settlements for consumers. 

Since then, the number of referrals by the OCC has dropped. Referrals alone can be misleading, however. Our fair lending supervision involves a four-pronged approach: 

First, we have a fair lending and risk assessment and screening 

process to identify banks that exhibit higher fair lending risks; 

Second, we conduct fair lending examinations of those banks, including statistical analysis; 

Third, we seek corrective action to address deficiencies; and 

Fourth, when necessary, we take enforcement actions to address 

violations of law. 

Formal enforcement actions involving referrals generally should 

be necessary only if preventive measures have failed to ensure compliance with the fair lending laws. 

We believe that’s why the fair lending exams have been conducted—we believe that’s why the fair lending exams we’ve conducted to follow up on disparities shown in the HMDA data have 

found that disparities were the result of legitimate, non-discriminatory credit factors, such as an applicant’s credit score or debt-to-income ratio. 

I also believe the national banks got the message that compliance with fair lending laws would be carefully scrutinized and 

many adopt the systems and controls to improve their fair lending 

compliance, because they knew we would be looking. 

Regular and rigorous oversight by the OCC may also explain why 

national banks are not major players in the market for high-cost 

mortgages, just as it explains why they are relatively small players 

in the market for subprime lending. 

Nevertheless, we remain committed to fully investigating price 

and disparities for unlawful discrimination, and we will continue to 

refine our fair lending strategies and techniques. 

The OCC is working with the other banking agencies, and on our 

own, to improve our supervisory capabilities. We routinely coordinate and share information so that we can learn from each other. 

We recently initiated a review through the FFIEC to evaluate 

whether the interagency fair lending procedures needed to be refined to better deal with pricing disparities. 

And to address two risk areas that are an increasing concern, the 

OCC will also conduct intensified reviews of bank controls over brokers and reviews of practices that might involve discriminatory 

steering. 

We will continue to review and enhance our fair lending supervisory processes, to ensure that the institutions we supervise do 

not engage in unlawful discrimination. 

I look forward to answering your questions. 

[The prepared statement of Mr. Hagins can be found on page 87 

of the appendix.] 

44

Chairman WATT. Thank you for your testimony, Mr. Hagins. 

Ms. Becker, of the U.S. Department of Justice, is recognized for 

5 minutes. 

STATEMENT OF GRACE CHUNG BECKER, DEPUTY ASSISTANT 

ATTORNEY GENERAL, CIVIL RIGHTS DIVISION, U.S. DEPARTMENT OF JUSTICE 

Ms. BECKER. Thank you. Good afternoon, Mr. Chairman, Ranking Member Miller, and members of the subcommittee. 

All Americans have the right to purchase homes and automobiles, and to borrow money for their businesses or their own personal consumer purchases, free of illegal discrimination. 

Lending discrimination is especially pernicious because these financial transactions are so critical to the American dream—the 

ability to purchase a home, to start a new business, or to pay for 

your children’s education. 

While the Department of Justice recognizes that lenders may legitimately consider a range of factors in determining whether to 

make a loan to an applicant, illegal discrimination has no place in 

this determination. 

The Civil Rights Division’s Fair Lending Enforcement focuses 

primarily on two statutes: The Fair Housing Act and the Equal 

Credit Opportunity Act. 

During this Administration, over 70 percent of the Division’s fair 

lending cases have involved race and national origin discrimination, primarily on behalf of African-American and Hispanic-American communities. The consent decrees that we have secured on behalf of minority victims have included monetary relief of over $25 

million. 

We’ve also recently brought cases involving discrimination on the 

basis of marital status and filed the first ever sexual harassment 

case under the Equal Credit Opportunity Act. 

Redlining—when lenders illegally refuse to do business in minority communities—constitutes over half of our fair lending enforcement in this Administration and relies heavily upon HMDA data. 

The Division’s redlining cases complement the predatory lending 

enforcement conducted by the other Federal agencies represented 

here today. 

When communities are abandoned by prime lenders through redlining, those communities become targets for less scrupulous lenders who may prey on minority communities using abusive products 

or loans. 

As one measured predatory practices, the Division includes consumer education as a component of our consent decrees, which 

helps to reduce the likelihood that individuals in these communities will become victims of predatory lending. 

For example, the Justice Department initiated a redlining investigation that culminated in a settlement with Centier Bank in Indiana. Under the settlement, Centier will open new offices and expand existing operations in previously excluded areas. 

The bank will also invest $3.5 million in a special financing program and spend at least $875,000 for consumer financial education, 

outreach to potential customers, and promotion of its products and 

services in these previously-excluded areas. 

45

The Division has also utilized HMDA data extensively in other 

fair lending enforcement efforts. The recent expansion of HMDA reporting to include pricing data has been a welcome additional 

source of information for identifying potential fair lending violations. 

We analyzed the HMDA pricing data as a starting point to identify disparities in the pricing of loans, primarily focusing on race 

or national origin. 

According to the 2004 data, there were 200 lenders that were 

identified as having statistically significant disparities that could 

not be explained by the reported HMDA data. 

The 2005 data identified 270 lenders. Now, there’s some overlap 

there. There was a reference on the first plan to 470 referrals. I 

just want to clarify the 400—I think the witness was referring to 

the 470 lenders, adding those 2 lenders together, not taking into 

account the overlap but just to make clear that the Justice Department hasn’t received 470 referrals. 

The first pricing referrals that we’ve received came over the last 

several months. 

We’ve received three referrals from the FDIC and two referrals 

from the Federal Reserve Board, stemming from the HMDA pricing 

data. But the Justice Department did not wait for referrals. When 

the Fed’s report came out in the fall of 2005, the Justice Department, on its own initiative, initiated a number of investigations 

based upon this HMDA data. 

And, although I cannot discuss the details of ongoing investigations, I can report that we’ve completed and closed two mortgage 

lending pricing investigations and that others are ongoing and 

moving to a determination as to whether to file a lawsuit. 

We expect to initiate additional investigations in the coming 

months as well. 

These fair lending investigations require a substantial investment of time and resources. We generally obtain and analyze detailed additional information that is not available through HMDA, 

such as the borrower’s credit score, loan-to-value ratio, and debtto-income ratio. 

Analyzing this detailed loan data, as well as information about 

the lender’s business policies and practices, enables us to assess 

whether those factors or possible discrimination may explain the 

pricing differences identified in HMDA data. 

The Division also works hard to coordinate fair lending enforcement with the other agencies here today. We have an interagency 

fair lending task force that we participate in, and we share the 

committee’s goal of utilizing all available information, including 

HMDA pricing data, to identify and stop lending discrimination. 

We’re working hard to achieve that goal, and we welcome the 

committee’s support. Thank you very much. 

[The prepared statement of Ms. Becker can be found on page 66 

of the appendix.] 

Chairman WATT. Thank you, Ms. Becker, for your testimony. 

And we now recognize Ms. Kendrick, of the Office of Housing and 

Equal Opportunity, U.S. Department of Housing and Urban Development, for 5 minutes. 

46

STATEMENT OF KIM KENDRICK, ASSISTANT SECRETARY, OFFICE OF FAIR HOUSING AND EQUAL OPPORTUNITY, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Ms. KENDRICK. Thank you. Chairman Watt, Ranking Member 

Miller, and members of the subcommittee, good afternoon. 

I am Kim Kendrick, Assistant Secretary for the Office of Fair 

Housing and Equal Opportunity, at the U.S. Department of Housing and Urban Development. On behalf of Secretary Alfonso Jackson, thank you for the opportunity to testify before you today. 

In 2004, the Federal Reserve Board, for the first time, began collecting pricing information as a part of its collection of Home Mortgage Disclosure Act data. 

In September 2005, the Federal Reserve Board released its first 

report analyzing this data. This report allowed us to see the extent 

of the pricing disparities between whites and African-Americans 

and Hispanics. In addition, the report data showed that minority 

borrowers were much more likely to receive a high-cost loan than 

white borrowers. 

Along with the report, the Federal Reserve Board provided HUD, 

the Federal Trade Commission, and the Department of Justice with 

a list of independent lending institutions whose HMDA data 

showed significant pricing and denial disparities between AfricanAmericans and Hispanics and whites. 

At your request, I am here today to discuss the fair lending enforcement activities HUD has undertaken since the release of this 

data. 

After receiving the Federal Reserve Board’s list in September 

2005, HUD assembled a task force of investigators, enconomists, 

and attorneys to review the list and to develop a methodology for 

selecting targets for enforcement. 

In addition to the data supplied by the Federal Reserve Board, 

we reviewed fair lending complaints, consumer complaints, and 

other HMDA data available in each of these lenders. 

Given the findings of the Federal Reserve Board, we chose to 

focus our review on lenders with significant disparities in the pricing of loans to minorities and white borrowers and select the lender 

that we thought most likely to show evidence of discrimination. 

So on April 14th, 2006, I authorized HUD’s first Secretary-initiated investigation resulting from the HMDA data. 

Since that time, the Department has reviewed and analyzed the 

lender’s policies, manuals, guidelines, defenses, and loan level data 

for multiple fiscal years. 

We have also hired an outside contractor with decades of experience to assist us in this complex analysis. 

In September 2006, the Federal Reserve Board released the 2005 

HMDA data and, again, provided HUD with a list of independent 

lenders based on that data. 

HUD, again, carefully analyzed the HMDA data, along with the 

fair housing complaints information, and targeted two additional 

lenders for Secretary-initiated investigations, based on pricing disparities. 

HUD is still investigating all of these Secretary-initiated actions. 

47

Although I cannot reveal the targets of our open investigations, 

I can say that we are looking at medium-sized lenders whose loan 

applications range from sizes 2,500 to 150,000 per year. 

Also, I can tell you that two of three targets are FHA-lenders and 

that the data for each of these reveal significant pricing disparities. 

The Department is currently reviewing the 2006 data to identify 

additional lenders with pricing disparities based on race, national 

origin, or sex. 

In addition to these HMDA Secretary-initiated investigations, 

the Department and the State and local partners in the Fair Housing Assistance Program complete an average of 425 additional 

lending investigations each year. 

These are cases filed by individuals alleging that the lender refused to provide them with loans or provided them with different 

loan terms or conditions on prohibitive basis. 

HUD and our State and local partners investigate each of these 

cases as required by the Fair Housing Act. 

Generally, we reach a determination on the merits of about 55 

percent of these cases, that alleged lending discrimination, and 

reach a conciliation in about 28 percent of such investigations. 

Home ownership is a cornerstone of the American dream. It 

takes most Americans many years to save up for a down payment 

and otherwise prepare ourselves for home ownership. 

HUD wants to be sure that race or national origin is never a barrier to obtaining a loan or becoming a homeowner. We will continue 

to investigate cases, continue to obtain meaningful relief for individuals, and to pursue systemic cases of discrimination, until we 

are confident that all lenders are providing all consumers with the 

loans that they deserve. 

Thank you for your time and your attention. 

[The prepared statement of Ms. Kendrick can be found on page 

138 of the appendix.] 

Chairman WATT. Thank you for your testimony. 

And I now recognize Ms. Parnes, from the Federal Trade Commission, for 5 minutes. 

STATEMENT OF LYDIA B. PARNES, DIRECTOR, BUREAU OF 

CONSUMER PROTECTION, FEDERAL TRADE COMMISSION 

Ms. PARNES. Thank you. Chairman Watt, Ranking Member Miller, and members of the subcommittee, I am Lydia Parnes, Director 

of the Bureau of Consumer Protection at the Federal Trade Commission. 

I appreciate the opportunity to appear before you today to discuss the Commission’s efforts to combat unfair, deceptive, and 

other illegal practices in the mortgage lending industry, including 

its fair lending enforcement program. 

As part of its mandate to protect consumers, the Commission has 

wide-ranging responsibilities regarding consumer financial issues. 

The Commission enforces a number of laws, specifically governing 

lending practices, including the Equal Credit Opportunity Act. 

The Commission also enforces Section 5 of the FTC Act, which 

broadly prohibits unfair or deceptive acts or practices in or affecting commerce. 

48

The FTC enforces these laws with respect to non-bank financial 

companies, including non-bank mortgage companies, mortgage brokers, finance companies, and units of bank-holding companies. 

The Commission engages in law enforcement investigations as 

opposed to regular examinations of the entities under its jurisdiction. 

I’m pleased to appear on this panel with representatives from 

agencies with whom the Commission works closely in the fair lending area. Through both formal and informal collaboration, we share 

information on lending discrimination, and predatory lending enforcement, and policy issues. 

Most recently, the FTC joined with the Federal Reserve Board, 

the Office of Thrift Supervision, and State regulators in announcing a pilot project to focus on whether certain large subprime lenders are complying with key consumer protection laws, including 

ECOA. 

The Commission’s Fair Lending Enforcement Program is a mainstay of the Agency’s consumer protection mission. The Commission 

has brought over two dozen ECOA cases against large mortgage 

lenders, major non-mortgage creditors, and smaller finance companies, alleging violations of both the substantive and procedural requirements of the ECOA. 

With the explosion of subprime lending in the last decade, the 

Commission also has focused on deceptive representations by 

subprime lenders regarding the cost and other key terms of a mortgage loan. 

Illegal practices in the subprime mortgage market, particularly 

affect lower income and minority consumers. 

Since the late 1990’s, the agency has brought 21 actions and re- turned over $320 million in redress to consumers, alleging deceptive or unfair practices against company in the lending industry 

with an emphasis on the subprime market. 

I would like to mention two notable examples of Commission 

cases against subprime lenders that targeted minority and low-income borrowers. 

In our lengthy litigation against Capital City Mortgage Corporation, a company that targeted African-American borrowers in the 

Washington, D.C. area, the Commission alleged that the defendants made deceptive claims at each stage of the loan process when 

making and servicing loans. This resulted in trumped-up fees and 

inflated monthly balances and pay-off amounts. Our complaint 

stated that these practices led to default and foreclosure in many 

instances. 

In Mortgages Para Hispanos, the alleged conduct also was egregious. A bilingual mortgage lender misled Hispanic consumers 

about key loan terms during the sales pitch, conducting it almost 

entirely in Spanish, and then provided closing documents containing less favorable terms in English. 

Currently, the Commission is engaged in several ongoing nonpublic fair lending investigations of mortgage lending companies. 

The Commission uses HMDA data as a tool to target companies for 

further investigation. 

Because HMDA data alone are insufficient to establish law violations, the Commission staff engages in resource intensive, statisVerDate 0ct 09 2002 16:33 Dec 10, 2007 Jkt 038394 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 K:\DOCS\38394.TXT HFIN PsN: TERRIE
49

tical analyses of additional information obtained through extensive 

document review and other evidentiary sources. 

The Commission has a strong commitment to enforcing the fair 

lending laws and will pursue vigorously any violations revealed by 

its investigations. 

The Commission also has an extensive program to educate consumers about financial literacy and subprime borrowing, including 

most recently a publication on how to avoid foreclosure. 

The Commission will continue to take aggressive and concerted 

action to hold illegal practices in the marketplace, while mindful of 

the important benefits that increased access to credit bring consumers. 

Again, I appreciate the opportunity to appear before the subcommittee and would be pleased to answer any questions you may 

have. 

[The prepared statement of Ms. Parnes can be found on page 235 

of the appendix.] 

Chairman WATT. Thank you, Ms. Parnes. 

Ms. PARNES. Parnes. 

Chairman WATT. I mispronounced your name, and I apologize for 

that. 

Ms. PARNES. That’s quite all right. 

Chairman WATT. I thank all of the witnesses for being here and 

for your testimony. 

In recognition of the fact that I’m going to be here until the end 

of the hearing, and some of my colleagues may have other scheduling conflicts, I’m going to defer my questions until the last person. So I’ll now yield 5 minutes to the gentleman from Massachusetts for questions. 

Mr. LYNCH. Thank you for your courtesy, Mr. Chairman. And 

thank you for inviting this distinguished group. 

I want to thank all the panelists as well for helping this committee with its work. I have a couple of questions. I’ll ask Ms. 

Braunstein first, and then Ms. Parnes second. 

We heard in the earlier panel, a distinguished group of, I would 

say, consumer advocates, describe trends that they see that are 

somewhat troublesome. And I know that the Federal Reserve is the 

primary analyst for HMDA data as set forth in the Federal Reserve 

Bulletin. 

What, in fact, do you see? Is the data, let me say, the interpretation of the data that we heard from the consumer advocates earlier 

today are consistent with what you see? 

Ms. BRAUNSTEIN. I really can’t comment on the nature of their 

studies because I—you know, we would have to do an independent 

review. 

Mr. LYNCH. Okay. How about just a straight question. What do 

you see? 

Ms. BRAUNSTEIN. What we see is pretty much explained in the 

bulletin article. We find that the data is extremely useful as a 

screening tool. It gives us great insight as to where there needs to 

be more investigation into specific institutions. 

But, also, the data—we believe that the data, in and of itself, 

does not determine whether or not there is a fair lending violation, 

that you need to have more factors involved, and— 

50

Mr. LYNCH. Okay. That was my next question. 

Ms. BRAUNSTEIN. Yes. 

Mr. LYNCH. Do you think, as they suggested earlier today, that 

the fact—that HMDA should be expanded to include other factors? 

And what would those factors be if you would support an expansion? 

Ms. BRAUNSTEIN. When we expand—we did expand HMDA data 

when we added the pricing data a few years back, and when we 

did that, we looked at other factors and found, for a variety of reasons, that they should not be added at that time. 

We’re constantly looking at our regulations and reviewing them, 

and I think, in order to expand the data, you have to look at certain things. You have to look at the benefits of the increased information, and you also have to look at the costs involved on the reporting institution because they’re not insignificant, and the benefits need to justify the cost. 

Also, I think it’s important to note that no matter how many 

data fields we were to add to HMDA, the HMDA data will never 

be determinative of discrimination in and of itself. 

There are things we look at in an institution in terms of how 

they manage their programs, and the kinds of due diligence they 

use. They could never be captured with data and are quite necessary in order to make findings of discrimination. So that’s, you 

know, how we look at it at this point in time. 

Mr. LYNCH. Okay. Thank you. 

Ms. Parnes, I noticed on page 13 of your testimony it says that 

65 to 70 percent of mortgages are going out through mortgage brokers who don’t necessarily provide HMDA data. 

First of all, can you describe the Fair Lending Enforcement Programs that you have at the FTC for these non-bank mortgage companies? And do you believe that brokers should also be required to 

report HMDA data? 

Ms. PARNES. Certainly. The Commission’s program, as I mentioned, it’s a broad program. Of course, we look at both—we enforce 

both the Equal Credit Opportunity Act and, as I mentioned, Section 5 of the Federal Trade Commission Act. 

When we’re enforcing the ECOA, we get the HMDA data. We review the data that we receive from the Fed. We use that data to 

select targets for further investigation. 

We do have several non-public investigations that are pending 

right now. 

We use our full investigatory powers during those investigations. 

We obtain detailed information from our targets concerning their 

practices, their underwriting criteria, and we engage in a very rigorous statistical analysis, looking at all of their loan files to determine whether the disparities that helped us target these institutions kind of hold true once you consider all of these other factors. 

Mr. LYNCH. What’s the share of resources you dedicate to that 

versus the industry, you know, in terms of looking at compliance? 

Ms. PARNES. Well, we’ve actually—about a year-and-a-half ago, 2 

years ago, we considerably expanded the resources that we’re devoting generally to this area. 

We had a reorganization in the Bureau of Consumer Protection. 

We created a division that focuses exclusively on consumer finanVerDate 0ct 09 2002 16:33 Dec 10, 2007 Jkt 038394 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\38394.TXT HFIN PsN: TERRIE
51

cial issues. Right now, we have a task force of about 10 attorneys, 

economists, investigators, and so forth, working exclusively on the 

HMDA data cases. And we have other attorneys and economists 

working more generally in the lending area. 

Mr. LYNCH. Okay. And just the last part of the question was do 

you support— 

Chairman WATT. The gentleman’s time is expired, but go ahead. 

Mr. LYNCH. It was already asked. I asked so many questions, you 

probably forgot this last line, about whether or not the broker 

should be required to report HMDA data as well? 

Ms. PARNES. Well, it’s one of the things that we are looking at 

in this process, and we plan on making a series of recommendations to our colleagues about whether reporting should be expanding. 

Mr. LYNCH. Fair enough. I yield back, Mr. Chairman. Thank you. 

Chairman WATT. Thank you. And I recognize my distinguished 

ranking member for 5 minutes. 

Mr. MILLER. Ms. Becker, you indicated in your testimony that 

DoJ has completed two fair lending investigations. And I know you 

can’t get into the details, but how did the Department utilize the 

HMDA information in these cases to your benefit? 

Ms. BECKER. The HMDA pricing information has been particularly valuable to the Department of Justice because it identifies 

specific lenders. 

A lot of times we will read articles in the newspapers about industry trends or about what’s happening in a particular region, but 

without identifying specific lenders, it’s difficult for us to be able 

to go in and investigate these cases. So that has been extremely 

helpful to us. 

What we have done is look at the HMDA pricing data as a starting point, and then we will contact the lender to get additional information. That information may include several non-HMDA factors to see whether or not the disparities may have been caused by 

legitimate reasons. 

They’ve been mentioned here today, but I’ll just mention them 

again. Credit score. It could be loan-to-value ratio or debt-to-income 

ratio. 

We have in-house economists and statisticians who will run a variety of different analyses. And sometimes the lenders will provide 

additional data that will require us to re-analyze the data that we 

currently have. 

And then, after that, we will make a determination whether statistically significant disparities are explainable for legitimate business reasons, or if there are no legitimate business reasons, then 

there is an inference that it may be discrimination. 

Based on the totality of all of that evidence, we will then make 

a determination of whether or not there’s sufficient evidence to believe that there is a pattern or practice of discrimination. Not an 

individual instance but a pattern of practice of discrimination going 

on in the institution. And where that’s insufficient, then we close 

the case. 

Mr. MILLER. Okay. Ms. Parnes, I know HMDA is only one component of the FTC’s lending enforcement. Is that correct, as you stated earlier? 

52

Ms. PARNES. Yes. Yes, it is. 

Mr. MILLER. There’s a broader range of activities that you pursue 

to combat illegal lending practices. Can you define what those 

might be? 

Ms. PARNES. Well, as I mentioned, we look at lenders in the 

subprime market, generally. And it’s an area that we think is an 

important one for the FTC to remain active. 

Mr. MILLER. When you talked about subprime market, I have a 

question. Would there be a legitimate reason why a specific lender 

might open a subprime branch in a certain area and not in another? 

Ms. PARNES. I don’t know that lenders actually offer, you know, 

only subprime loans in specific branches. That’s not necessarily the 

experience that we found. But, of course, we don’t regulate—you 

know, our regulation doesn’t extend to banks at all, the non-bank 

institutions. 

Mr. MILLER. Okay. Ms. Kendrick, you indicated that the Department uses its subpoena powers to obtain additional loan information, to determine whether the differences in pricing are due to 

race, or can be explained by other factors. Is this additional information crucial to your determination? 

Ms. KENDRICK. Yes. And I understand why you sat me between 

these two fine women, because we basically do the same thing. 

The data we take a look at, we take a look at it initially from 

the HMDA data, but we have to take a look at the other information, the loan— 

Mr. MILLER. A broader range of information, such as? 

Ms. KENDRICK. Broader range of information because that’s going 

to help us determine, because some of the factors, pricing disparity 

is just not enough to determine discrimination. 

Mr. MILLER. What would that broader range of information be 

that you would look at? 

Ms. KENDRICK. In addition to— 

Mr. MILLER. HMDA. 

Ms. KENDRICK. —we take a look at the loan-to-value ratio, the 

income. We take a look at the location of the property. We take a 

look at other factors, such as the credit background and credit 

scores of the individual, and so that all helps us determine whether 

or not discrimination is going on. 

And we take a look—we do a kind of pair testing—kind of looking at people who are similarly situated to see if they are treated 

similarly. 

Mr. MILLER. Do you think HMDA is a reasonable indicator that 

you can use to determine whether you want to pursue additional 

investigations or not? 

Ms. KENDRICK. Yes. It’s been an excellent tool for us. 

Mr. MILLER. Okay. And, Ms. Parnes, how does the FTC protect 

minority consumers from deception and other legal practices? Do 

you have any tools that are used beyond that? 

Ms. PARNES. Well, what we do—I mean, we do this, certainly as 

I mentioned, in the subprime market, we have—in the subprime 

lending market where we’ve brought a lot of cases and returned 

over $320 million back to consumers. 

53

But we have a program that focuses on Hispanic consumers as 

well. We found a number of years ago that Hispanic consumers 

were subjected to fraud at a greater rate than non-Hispanic white 

consumers. And, because of the language barrier, we’ve made efforts to translate all of our consumer education material into Spanish, and to make special efforts in terms of law enforcement and 

outreach to the Hispanic community. 

Mr. MILLER. Now, there are opportunities for individuals to shop 

for better loans. Is there anything you can see that we could do to 

help improve consumer shopping? 

Ms. PARNES. Well, the Commission issued about a month ago, 2 

months ago, a report on mortgage disclosure, and it was a report 

of our economics, and it recommended consideration of better disclosures in mortgage documents, and I certainly think that would 

be an area well worth paying attention to. 

I think mortgage disclosure documents are very confusing for 

consumers, and clearing that up would be a great step. 

Mr. MILLER. Thank you very much. 

Chairman WATT. I thank the ranking member. 

And I recognize the gentlewoman from New York for 5 minutes. 

Ms. MCCARTHY. Thank you. 

Listening to everybody’s testimony, and I’m sitting here because 

I have eight regulators in front of me, and obviously we have seen 

an increase in problems over the last couple years that are actually 

hitting ahead kind of now, as far as discrimination. 

Were there any warning signs out there that this was all coming 

to a head? Do you guys talk to each other? Do you share information on what you even just read in the paper? I mean, we read the 

papers, the Wall Street Journal, and you look to see that—we could 

see that things were boiling up. That was several months ago, and 

I know some have mentioned that a month ago they put a new 

thing in place. But this has been going on for a number of years 

now. 

And I think it was last month we had another hearing here with 

Ms. Blair of the FDIC. She offered a brief outline of deceptive mortgage practices. She had a list. 

And I guess the question to all of you is, should we have one authority to really look into all of this, where we have eight regulators in front of us, and each one of you I’m sure do a good job. 

But in the collective area, it doesn’t seem we have gotten better. 

If anything, it’s embarrassing, and I think our government has 

kind of failed our consumers out there that are being discriminated 

against because those numbers have gone up. 

So I’m a little frustrated here on the testimony that I’m hearing 

today, and certainly the hearing—those that were here to listen to 

the testimony earlier. 

I don’t know what else to say. Any answers from anybody? 

Ms. KENDRICK. Well, I’ll take it. From the U.S. Department of 

Housing and Urban Development, this is an area we were looking 

at even last year, in the last session of Congress, when Secretary 

Jackson came before Congress and asked that we modernize the 

Federal Housing Administration program, because we recognized 

that some of these issues were, when they come to the forefront, 

and he thought that modernizing the Federal Housing AdministraVerDate 0ct 09 2002 16:33 Dec 10, 2007 Jkt 038394 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 K:\DOCS\38394.TXT HFIN PsN: TERRIE
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tion program would help stem, kind of, some of this tide, so that 

people could use a product that is safe and secure. 

Ms. MCCARTHY. Well, I understand that. And I’m not trying to 

put the blame here on anyone. 

I’m just wondering that, you know, this has been going on for a 

number of years. Do we in government react too slowly in trying 

to correct a problem that obviously has been going on for a number 

of years? 

I mean, these boutique mortgages probably started several years 

ago. We certainly knew, even a few years ago, that those mortgage 

brokers that are not licensed have been a big problem in different 

States. And, yet, we didn’t react fast enough, and so we saw this 

problem bubbling up faster and faster until the point of where all 

the foreclosures started happening. And the first signs were about 

a year ago, because that’s when we saw the market on housing 

start to go down. 

So I’m saying all the warnings were there. I mean, you know, the 

newspapers were picking it up. 

We’re having a hearing in July, trying to figure out how we’re 

going to make sure this doesn’t happen again. And I think that’s 

something that, you know, we all have to look at. 

So, I mean, with—no one answered whether do you guys work 

together? Do you share information together? 

Ms. THOMPSON. We do work together. The Federal banking agencies work together. We have the FFIEC, which is comprised of all 

the Federal banking agencies. 

A couple of years ago we started to look at the increase in delinquencies in the mortgage market and we worked together to come 

up with non-traditional mortgage guidance to cover the interestonly products and some of the mortgage products with negative 

amortization. 

We recently worked together to issue the subprime statement 

that covers some of the products that have payment shock. 

We have also been working together to try to combat the foreclosure issue. We issued a joint statement to all of the institutions 

that we supervise so that they would be encouraged to work with 

borrowers to restructure some of these bad loans. 

We do talk to one another. 

Ms. MCCARTHY. I guess that’s the word. You ‘‘encourage.’’ When 

there’s a prosecution and, basically, you fine that particular institution for wrongdoing. I think you had said $800,000 was a fine, if 

I heard that correctly. 

Is that enough bite to discourage other financial institutions from 

not doing wrong because they’re making so much money? So, all 

right, so they throw out—say they pay a million dollars. How much 

have they actually made over doing bad practices? 

Ms. THOMPSON. When we find a violation, even if we don’t have 

a pattern or practice, and refer that violation to the Justice Department, we require our institutions to take corrective actions immediately. And if that violation is substantive and involves harm to 

consumers, we require the institution to find all consumers that 

have been harmed by that particular violation, and then implement 

restitution. 

Ms. MCCARTHY. To each and every one that has been violated? 

55

Ms. THOMPSON. That’s correct. 

Ms. MCCARTHY. And do most of those that have been violated respond? 

Ms. THOMPSON. Absolutely. There is huge reputational risk for 

the institution, so when we cite violations, they want to take immediate action to correct the problem. And that is notwithstanding 

whether or not we decide that there is a pattern or practice of fair 

lending violations. 

Ms. MCCARTHY. Are they large numbers? 

Ms. THOMPSON. Well, at the FDIC, since 2004, we have referred 

115 findings of illegal discrimination under ECOA to the Justice 

Department. 

We have cited 170 institutions for substantive ECOA or FHA violations since 2004. And for non-substantive violations, we have 

cited over 2,000 violations for ECOA and the Fair Housing Act. 

There were HMDA reporting violations as well, and we cited over 

1,300 of those. 

Ms. YAKIMOV. Could I add that the project that was mentioned 

earlier where the Federal Reserve, the OTS, looking at holding 

company subsidiaries, mortgage brokers to the FTC, and the 

State’s authority, I think it’s an important project, and it speaks 

to how we’re working and communicating so that we’re coming up 

with a common approach, areas where we’re going to focus, including HMDA, ECOA, Truth in Lending, and we’re going to share results. 

Obviously, if we find issues, we’ll deal with those under our respective jurisdiction, but this sharing, this collaboration, I think 

really connects the dots in a way that is important to root out any 

potential discrimination or broader violations of consumer protection statutes. 

Ms. MCCARTHY. I know my time is up, but I guess food for 

thought is, why are we still having discrimination in the year 

2007? 

I guess that’s the question that we need to answer. 

Chairman WATT. Thank you. 

And the gentleman from Texas, Mr. Green, is recognized for 5 

minutes. 

Mr. GREEN. Thank you, Mr. Chairman. And thank you, members 

of the panel, for appearing today. 

The question that I’m grappling with now is, how do we prove 

illegal covert discrimination based on what we’ve heard? Obviously, 

confession would be a great way to do it. However, the mendacious 

mentality of persons who perpetrate this kind of behavior usually 

does not lend itself to a confession. 

Statistical information would be great, except that we always 

have someone who will conclude that statistical information is inconclusive, and perhaps you cannot even construct a means by 

which you can acquire the statistical information via the process 

that HMDA uses. And litigation, of course, is a means, but that can 

be quite costly. 

So the question becomes, how do we acquire this empirical data 

to prove that illegal, unlawful discrimination exists? 

Ms. Braunstein, I believe it is, how would you conclude that we 

can acquire the empirical information? 

56

Ms. BRAUNSTEIN. Well, we do use statistical analysis, and we 

find it to be quite effective. 

The HMDA data, alone, is not sufficient, but through our examination authority, we have the ability to gather additional information from financial institutions. And when we use this additional 

information, we have found that we are able to actually root out— 

Mr. GREEN. Let me ask this, if I may. 

You’ve heard talk of testing. I’m sure you’re familiar with the 

process? True? 

Ms. BRAUNSTEIN. Yes. 

Mr. GREEN. Yes. Is testing a useful tool in acquiring empirical 

data? 

Ms. BRAUNSTEIN. I think testing could be a useful tool. 

Mr. GREEN. What about testing causes it to be less useful than 

some of the other methodologies? 

Ms. BRAUNSTEIN. I think it depends on the financial institution 

and the situation. For one thing, if you’re using testing in small institutions, oftentimes it’s not as effective, and many of our institutions are quite small. 

Whereas, if you start sending in pairs of people, as they do in 

testing, it’s going to be quite obvious that something’s going on, because they don’t get that kind of volume in institutions. 

Mr. GREEN. I understand. 

Ms. BRAUNSTEIN. Yes. 

Mr. GREEN. Well, assuming for a moment that we can have covert testers to reveal covert discrimination, that’s what we’re going 

after, if we can get them in, and it’s not known that they’re testers, 

is this an efficacious means by which we can uncover unlawful discrimination? 

Ms. BRAUNSTEIN. We would have to take a closer look at it and 

see how the program was structured. 

Mr. GREEN. Assuming that it is structured such that you have 

testers who are equally qualified and one receives positive response 

and the other a negative, that would not be helpful? 

Ms. BRAUNSTEIN. It could be. Yes. 

Mr. GREEN. Would you think that testing would be another 

means by which we could acquire the empirical data necessary to 

prove that unlawful discrimination exists? 

Ms. BRAUNSTEIN. As I say, it could be. 

Mr. GREEN. Could be. But you’re not really sure? 

Ms. BRAUNSTEIN. At this point, no. 

Mr. GREEN. I see. Is there anyone on the panel who thinks that 

testing is a lawful and useful means of proving that invidious and 

unlawful discrimination exists? If so, would you kindly raise your 

hand? 

Okay. One, two. If you don’t raise your hand, I’ll have a few 

questions for you. 

[Laughter] 

Mr. GREEN. Okay. It looks like we have everybody but the gentleman who didn’t raise his hand. I can’t see your name. 

All right, sir. You have some concern about testing? 

Mr. MARQUIS. Well, I don’t have a concern about it. I think 

maybe it could be useful, but I guess you’d have to be careful in 

terms of filling out false applications, letting someone who is actuVerDate 0ct 09 2002 16:33 Dec 10, 2007 Jkt 038394 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 K:\DOCS\38394.TXT HFIN PsN: TERRIE
57

ally really filling out false applications, and then said, ‘‘Oh, I was 

just a tester.’’ I guess you’d have to understand ahead of time who 

those testers would be. 

Mr. GREEN. All right. Let’s assume that— 

Mr. MARQUIS. If they’re not—in other words— 

Mr. GREEN. Let’s assume that we add that to the equation. We 

do that. Now can testing become the useful tool? 

Mr. MARQUIS. Maybe it could be. Yes. 

Mr. GREEN. Would you think that it would be appropriate to use 

testing in financial institutions to ascertain whether or not—well, 

before I go there. Quickly. 

Would testing act as a deterrent if we publish the fact that testing is taking place? Do you think it would be a deterrent? If you 

think so, would you kindly raise your hand? Do you think it would 

be a deterrent? 

Okay. If you did not raise your hand, then raise your hand now. 

Okay. Everybody thinks testing would be a deterrent. 

So, Mr. Chairman, if I’m over time, I will yield back at this point. 

Chairman WATT. The gentleman observes the red light. 

Mr. GREEN. Yes, sir. 

Chairman WATT. Which is an indication that the gentleman’s 

time has expired. Although if he wishes an additional 30 seconds, 

he may have it. 

Mr. GREEN. I would welcome 30 seconds, Mr. Chairman. 

With reference to the testing, as you know, the Federal laws currently are an obstacle to this type of testing. Would you think that 

it would be appropriate for us to make an exception so that we can 

eliminate this kind of unlawful discrimination? 

I think that in 2007 we ought to be at a point in the history of 

our country where we want to end unlawful discrimination. We 

ought to have the will to do it. Would that help us if we, in Congress, worked on these laws so that we could test and find out who 

the culprits are? 

And I will yield back, and ask that, if you would, just raise your 

hand if you think it’ll help. Anybody think it’ll help us to do this? 

Congress? 

Okay. If you didn’t raise your hand, then raise your hand now. 

Anybody? 

Yes. You don’t think it would help, ma’am? 

Ms. BRAUNSTEIN. No, I lost the question. I didn’t hear the entire 

question. 

Mr. GREEN. Well, I understand. I will forego any additional questions. 

Thank you, Mr. Chairman. You have been very generous. 

Chairman WATT. Thank you for your questions. 

I’ll recognize myself for 5 minutes, but will generally say that I 

have so many questions, really, that the bulk of them will have to 

be covered in written form, which we will do in follow-up to the 

hearing. 

I do hear what the gentleman is saying. There is a Federal statute that makes if unlawful to knowingly and willfully falsify a 

credit application or applications of this kind, which is a deterrent 

to testing, and we may need to take a look at that. 

58

I am surprised to hear that HUD is engaged in paired testing. 

Ms. Kendrick, that’s the first time I’ve heard that. Are you sure 

that HUD is engaged in paired testing somewhere? 

Ms. KENDRICK. It’s paired analysis of the data, by taking a look 

at equally qualified persons and pairing them together to make an 

assessment about whether or not— 

Chairman WATT. Okay. So that’s different than paired testing 

that was testified about earlier, when you send out testers— 

Ms. KENDRICK. Oh, no. This is paired analysis testing. 

Chairman WATT. Okay. I’m glad I clarified that because you said 

paired testing, and I didn’t think HUD was engaging in that practice. 

Ms. Braunstein, the Fed has defined these parameters for reporting under HMDA. Would it require congressional action to expand 

the information collected— 

Ms. BRAUNSTEIN. No. We— 

Chairman WATT. —or does the Fed have the authority to expand? 

Ms. BRAUNSTEIN. We have the authority, as we did with the pricing data, to add additional fields. 

Chairman WATT. Within what parameters? 

Ms. BRAUNSTEIN. I am not aware of parameters. I mean, obviously, as I mentioned before, we do cost benefit analysis of adding 

additional fields because there is, you know, cost involved. 

Chairman WATT. So if we wanted additional parameters added, 

Congress, after jaw-boning you all, as we’ve done in some other 

areas— 

Ms. BRAUNSTEIN. Well, certainly, I mean, Congress—HMDA was 

created by Congress— 

Chairman WATT. I understand. We could do it ourselves or we 

could— 

Ms. BRAUNSTEIN. Right. 

Chairman WATT. —more aggressively encourage you to do it. 

The troubling thing is, I mean, the fields that you are—the parameters over which you are testing get generally to subprime 

lending, high-cost lending. 

My concern is that these same patterns probably are out there 

in non-high-cost loans. Is there any way that you have to determine whether that is the case also? 

Ms. BRAUNSTEIN. Yes. During our fair lending reviews of the institutions we supervise, we look at pricing across all loan products 

not just the high-cost mortgages. 

Chairman WATT. I understand that. I guess the question I’m asking is, can we be assured that this same pattern that exists, or appears to exist, of discriminatory pricing, in high-cost loans, doesn’t 

also exist if we were running the numbers in all loans? 

Ms. BRAUNSTEIN. We can only speak to the institutions that we 

supervise, not across the whole industry. 

Chairman WATT. But could you even give me that assurance for 

the institutions that you supervise? 

Ms. BRAUNSTEIN. Yes, I think I could, because we do very rigorous— 

Chairman WATT. You’re saying I would see a— 

Ms. BRAUNSTEIN. —and if we had— 

59

Chairman WATT. —different pattern in non-high-cost loans than 

I would see in high-cost loans? 

Ms. BRAUNSTEIN. There is a difference between seeing a pattern 

in the HMDA data and finding actual cases of discrimination, of 

fair lending violations, as we know. 

We have the HMDA data which flagged a certain number of institutions for closer looks, but not every one of those institutions 

was actually violating fair lending laws when we looked further. 

So I would expect that it would be the same kind of thing with 

the non-high cost loans, as we may see institutions that wanted 

further attention. And if we found evidence of discrimination, we 

would take appropriate action. 

Chairman WATT. Let me put you all on the spot just a little bit, 

because over and over I’ve heard privately, off the record, that ‘‘a 

problem’’ in this area is that you all regulators make referrals to 

the Department of Justice. The Department of Justice just simply 

kicks them back for you all to do something. The Department of 

Justice is really not aggressively—now I know your colleague from 

the Department of Justice is here, but we need to get to the bottom 

of this. 

We all know—I don’t think there’s anybody on this panel who 

doesn’t know that there’s some discrimination going on, whether 

you—we’ve accepted the fact that HMDA doesn’t prove discrimination. I’m not suggesting that. But there’s not a single person in the 

lending community, the borrowing community, or the regulator 

community, that doesn’t know that there’s still differentials based 

on race. 

And it doesn’t stop when you get to the higher-income AfricanAmericans. In fact, some suggestion is that it gets worse as you go 

up the income ladder. 

So I’m trying to figure out what we can do, effectively, to stop 

this. I mean, it is just—it is inexcusable for people with identical 

credit records, identical everything, except their races, and one gets 

a loan that’s a quarter point higher or 10 basis points, or 15 basis 

points. 

Mr. LaCour-Little eliminated everything down to 10 or 15 basis 

points but still, even that, is unacceptable. 

So how do we get to the bottom of this? I guess that’s where I’m 

trying—that’s the frustration that everybody is feeling here. 

Anybody have any suggestions? And I’ll make that my last question. I know the ranking member—but that’s the bottom line of 

where we are here. Everybody knows that it’s going on. Everybody 

says they’re doing everything they can do to eliminate it and, yet, 

time after time after time, we come back here, and we know that 

it’s still going on. 

Ms. PARNES. Mr. Chairman, if I could. Do not render a verdict 

yet on the Federal Government’s response on this issue. 

I would just say that the pricing data has been available to all 

of us for about 2 years now. And while I certainly understand your 

perspective that 2 years is a long time, the investigations that 

we’re conducting are truly incredibly resource intensive, and 

they’re very thorough. 

And I think that when—you know, at the end of the day whatever conclusions we reach, I think that we will all be satisfied that 

60

either we have established that the underwriting criteria explain 

the disparities that the HMDA data are showing us, or we will be 

announcing cases based on ECOA violations. 

Chairman WATT. Well, I appreciate your response. And it may be 

true, and I will acknowledge that the frustration that you are hearing coming out of this individual is not a frustration of only 2 years 

or 4 years of collection of data, it is a frustration of 61 years, 330 

days. You know, I’m tipping up on 62 years here next month. 

And we just have to get to a point where, you know, the Supreme 

Court apparently has already decided that we are there, that race 

is not a factor any more. 

Well, we have to prove it if that’s the case. If the Supreme Court 

is going to say that we’re never going to take race into account any 

more in doing anything, then our Nation has to live up to that expectation. 

So this is not, you know—to some extent, it’s an expression of 

frustration that this is not happening based on this information but 

is more a reflection of frustration that comes with being on this 

earth and being an African-American for over 61 years now. So I’ll 

just end with that. 

Let me do what I have to do procedurally here. 

The Chair will note that some members, including the Chair, 

may have additional questions for this panel, which they may wish 

to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to 

these witnesses and to place their responses in the record. And we 

would ask that you respond expeditiously. 

I want to thank you on behalf of the ranking member and myself 

and the full subcommittee for appearing. 

And unless there is something good for the order, or whatever 

the expression is, this hearing is adjourned. 

Thank you. 

[Whereupon, at 5:15 p.m., the hearing was adjourned.] 

(61)

A P P E N D I X

July 25, 2007

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