The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
P h ila d e lp h ia , P e n n s y lv a n ia M ay 19, 1976 S in c e b e c o m in g C h a ir m a n of the F D IC s e v e r a l w e ek s ago, I hav e r e c e i v e d m an y in v ita tio n s to sp e a k . I h av e tu rned down m o ? t of th o se in v ita tio n s b e c a u s e I h av e f e l t th at it is im p o r ta n t to spend a s m u ch tim e a s p o s s ib le at m y d e sk during th is e a r l y p e r io d . H ow ev er, I w as happy to a c c e p t th is in v ita tio n to sp e ak at the N AM SB co n v en tio n . The F D IC is the only F e d e r a l s u p e r v is o r y a g e n c y f o r the sa v in g s bank in d u stry and sa v in g s ban k s c o m p r i s e about o n e - t h ir d of the d e p o s its of a ll banks e x a m in e d by the F D I C . H appily, f r o m both our po in ts o f v iew , sav in g s b an k s give us m u ch l e s s than t h e i r p r o p o r tio n a te am ount of s u p e r v is o r y p ro b le m s. T od ay I would lik e to sa y a few w o rd s about our view of the cond itio n of the sa v in g s bank in d u str y and a ls o our a n a ly s is of the c u r r e n t y e a r ' s outlook. I th en w ill tu rn to m y m a j o r to p ic today, f a i r housing lend in g. A tten tion h a s b e e n given in r e c e n t w e e k s to a d e c lin e in the su rp lu s p o s itio n of m u tu al sa v in g s b a n k s . In our v iew , th is d e c lin e , w hich we s e e a s a r e l a t i v e l y in s ig n if ic a n t one, h a s b e e n a r e s u l t m o r e of the p r o b le m s a s s o c i a t e d with in fla tio n than anything e l s e . In flatio n h as t h r e e d i r e c t u n d e s ir a b le e f f e c t s on m u tu al sa v in g s bank c a p ita l. F irst, in fla tio n , a c c o m p a n ie d by an i n c r e a s e in the m o n e y supply, r e s u l t s in an i n c r e a s e in the d o lla r am ou nt of d e p o s its . an i n c r e a s e in o p e r a tin g e x p e n s e s . Seco n d , in fla tio n r e s u l t s in T h ir d , in fla tio n is a c c o m p a n ie d by high i n t e r e s t r a t e s , w hich i n c r e a s e the i n t e r e s t e x p e n se of sa v in g s banks - 2 - m o r e ra p id ly than the i n t e r e s t in c o m e f r o m l o n g - t e r m a s s e t s . The net r e s u l t is an in a b ility of sa v in g s banks to r e t a in e a r n in g s in a s u ffic ie n t v o lu m e to m a r g in the rap id d e p o sit grow th. We a r e c o n c e r n e d , of co u rse » about continu ed d e c lin e of m u tu al sa v in g s bank su rp lu s r a t i o s . We r e c o g n i z e , h o w e v e r , th a t the d e c lin e in r e c e n t y e a r s h a s not r e s u lt e d f r o m l o s s e s o r s u b s ta n tia l d e t e r io r a t io n of a s s e t q u a lity , o r f r o m a d e lib e r a t e m o v e m e n t of the in d u stry tow ard a r i s k i e r c a p ita l p o s itio n , but in s te a d is s im p ly a r e f l e c t i o n of the e c o n o m ic f o r c e s th at the in d u stry has faced . The l a s t few y e a r s have b e en tr o u b le s o m e o n es f o r the c o m m e r c i a l banking in d u s tr y . One of the m o s t s e r i o u s p r o b le m s f a c e d by c o m m e r c i a l banks h a s been in r e a l e s t a t e lendin g. T h i s , of c o u r s e , is the a r e a in w hich m u tu al sa v in g s banks devote m o s t of t h e i r r e s o u r c e s . Y e t the m u tu al sa v in g s ban k s hav e w e a th e r e d th is v e r y tr y in g p e r io d of r e a l e s t a t e fin a n c in g v ir t u a lly u n sca th e d . lo an l o s s e s a r e at r e c o r d l e v e l s . C o m m e r c i a l bank r e a l e s t a t e M utual sa v in g s bank r e a l e s t a t e lo an l o s s e s , w hile up slig h tly , a r e s t i l l low and no c a u s e f o r c o n c e r n . S i m i l a r l y , a g r e a t deal of a tte n tio n h a s b e e n paid in r e c e n t m o n th s to o u r p r o b le m l i s t . The n u m b e r of c o m m e r c i a l banks on the p r o b le m l i s t is at the h ig h e s t le v e l s in c e the a f t e r m a t h of the d e p r e s s io n , I hope the w o r s t is p a s t with r e s p e c t to th e c o m m e r c i a l bank p r o b le m lis t. B u t the m u tu al sa v in g s bank p r o b le m l i s t h a s c a u s e d us a lm o s t no c o n c e r n at a l l . T h e r e a r e v e r y few m u tu al sa v in g s ban k s on the p r o b le m - 3 - l i s t , only two o r t h r e e , and th is r e p r e s e n t s no r e a l ch an ge f r o m the situ a tio n of s e v e r a l y e a r s ago. Of c o u r s e , m u tu al sa v in g s ban k s have gone through a d iffic u lt few y e a r s . We e x p e c t, h o w e v e r , th a t 1976 is going to be a n e a r r e c o r d y e a r f o r m u tu al sa v in g s bank e a r n in g s . O ur a n a ly s is of f i r s t q u a r t e r r e p o r t s find s the in d u str y m oving about on the t r a c k we e x p e c te d . D e p o sits have b e e n flowing into m u tu al sa v in g s banks at s. r e c o r d p a c e a l l y e a r , and show no sig n s of sla c k e n in g o ff. O bv io u sly th e s e inflow s a r e s e n s it i v e to m a r k e t i n t e r e s t r a t e s , and at the p r e s e n t t im e , the r a t e s o f f e r e d by m u tu al sa v in g s b an k s c o m p a r e v e r y ,f a v o r a b l e with r a t e s a v a ila b le on the open m a rk et. We r e c o g n i z e th at th a t m ig h t ch an g e . Many f o r e c a s t s a n tic ip a te so m e i n c r e a s e in s h o r t - t e r m i n t e r e s t r a t e s o v e r the l a s t h a lf of 19 7 6 . But w hile that m a y w e ll be th e c a s e , we s e e l i t t l e lik e lih o o d th at i n t e r e s t r a t e s w ill r i s e f a s t enough o r high enough to r e s u l t in d is i n t e r m e d ia t io n . The d e p o sit in flo w s, so f a r th is y e a r , hav e allow ed sa v in g s b an k s to g r e a t l y im p r o v e t h e i r liq u id ity p o s itio n . T h is in c lu d e s both the r e p a y m e n t of b o r r o w in g s , and an e x p a n sio n in holdings of s h o r t - t e r m s e c u r i t i e s . M utual sa v in g s b an k s w ill tu rn m o r e h e a v ily to the m o r t g a g e m a r k e t in th e r e m a in d e r of the y e a r , and we e x p e c t m o r tg a g e h o ld in gs to i n c r e a s e by o v e r $3. 5 b illio n in 19 7 6 , O b v io u sly , in v e s tm e n t in s h o r t - t e r m s e c u r i t i e s tend s to p e n a liz e e a r n in g s in the s h o r t run, but t h e r e is no q u e stio n th at it h a s le f t the in d u stry in a v e r y stro n g p o s itio n to m e e t w h a te v e r the fu tu re m a y b r in g . Not only is t h e r e ad equ ate liq u id ity to hand le the t h r e a t of p o s s ib le 4 o u tflo w s, but an i n c r e a s e in i n t e r e s t r a t e s th is tim e around w ill find the s a v in g s ban k s with s u b s ta n tia l r e s o u r c e s w hich ca n be m o v ed into a t t r a c tiv e h ig h -y ie ld in g in v e s tm e n t o p p o r tu n itie s. T h e im p ro v e d e a r n in g s th at the sa v in g s banks a r e e x p e r ie n c in g th is y e a r a r e a c c o u n te d f o r by the s iz a b le grow th in d e p o s its . P ro fit m a r g i n s , w hile e x p e c te d to be so m ew h at h ig h e r than the l a s t couple of y e a r s , a r e s t i l l low and a r e p o o r in c o m p a r i s o n with the m o r e r o b u st p r o f it m a r g i n s of the e a r l y 1 9 7 0 s . We p r o j e c t net in c o m e at . 42 p e r c e p t of a s s e t s f o r 1976 c o m p a r e d with about . 35 p e r c e n t in 1974 and 19 7 5 , 1972 and 19 7 3 , the r a tio w as above , 5 p e r c e n t . In In fla tio n , with it s im p a c t on n o n in t e r e s t c o s t s , and the stead y r i s e in the p e r c e n t a g e of sav in g s banh d e p o s its a cco u n te d f o r by h ig h -y ie ld in g t e r m a c c o u n ts , m a y m a k e it i m p o s s ib le to r e t u r n to th o se days of h i g h e r - p r o f i t m a r g i n s . But a n a rro w er m a r g i n on e v e r - i n c r e a s i n g d e p o sit v olu m e m a y not be an u n s a t is f a c t o r y in d u stry p o s itio n . I'd lik e to m o v e now to the q u e stio n of f a i r housing lending. At m y c o n f ir m a t io n h e a r in g , S e n a to r P r o x m i r e and I d is c u s s e d several m a tte rs. He le d off with one i s s u e , h o w e v e r , w hich he r e tu r n e d to at the c o n c lu s io n of the h e a r in g . m e n t of f a i r hou sing lending la w s . T h a t m a t t e r c o n c e r n e d F D IC e n f o r c e I think it f a i r to in f e r f r o m the s t r e s s he put on th at to p ic th at it is h is v iew , and that of the S e n a te Banking C o m m i t t e e , th at the F D IC should give s e r io u s a tte n tio n to th is m a t t e r o v e r the co m in g m o n th s . I w as not unhappy with th at e m p h a s is b e c a u s e it h a s been - 5 - m y p e r s o n a l view a ls o that the F D IC should devote s u b s ta n tia l e f f o r t to a s s u r in g th a t m o r tg a g e lending by c o m m e r c i a l and m u tu al s a v in g s banks is c a r r i e d out in a n o n d is c r im in a t o r y m a n n e r . I would lik e to r e v ie w the b ack g ro u n d of th is m a t t e r with you b r i e f l y , and then d i s c u s s what we m ig h t do about it. In 1 9 6 8 , C o n g r e s s p a s s e d a C iv il R ig h ts A ct th at includ ed a t i t l e on f a i r ho u sin g . A s e c tio n of th is A c t m a d e it unlawful f o r any f in a n T c i a l in s titu tio n to d i s c r i m i n a t e in r e a l e s t a t e lepding on the b a s i s pf r a c e , c o l o r , r e lig io n ox n a tio n a l o r ig i n . A f u r t h e r p r o v i s io n of th e A c t r e q u i r e s »'all e x e c u t iv e d e p a r tm e n ts and a g e n c ie s to a d m in is t e r t h e i r p r o g r a m s and a c t i v i t i e s r e la tin g to ho u sing and u rb a n d e v elo p m e n t in a m a p p e r a f f i r m a tiv e ly to f u r t h e r the p u r p o s e s of th is t i t l e , ” In 19 7 4 , th is A c t w as am en d ed so a s to p r o h ib it d i s c r i m i n a t i o n on a c c o u n t of s e x in m o r tg a g e fin a n c in g . The E q u al C r e d it O pportunity A c t added m a r i t a l s ta tu s and age a s ille g a l b a s e s fo r d iscrim in a tio n . The C iv il R ig h ts A c t p r o v id e s a c l e a r p r o s c r i p t i o n a g a in s t t h e s e e n u m e r a te d d i s c r i m i n a t o r y p r a c t i c e s , but does not s p e c i f i c a l l y c a l l f o r r e g u la tio n s to be is s u e d by the f in a n c ia l r e g u la t o r y a g e n c ie s o r sp e ll out o th e r d u ties o r o b lig a tio n s of su ch a g e n c ie s w ith r e s p e c t to e n f o r c e m e n t . In D e c e m b e r 1 9 7 1 , the F D IC is s u e d a p r e s s r e l e a s e giving n o tic e of inten tio n to f o r m u la t e r e g u la t io n s r e la t e d to the A c t, and is s u e d a p o lic y s t a te m e n t on f a i r housing d ir e c t in g bank s s u p e r v is e d by the F D IC to give pu blic n o tic e th at t h e i r r e a l e s t a t e lo a n s a r e a v a ila b le without r e g a r d to r a c e , c o l o r , - r e lig io n o r n a tio n a l o r ig in . 6 - We a ls o r e q u ir e d th at a f a i r housing n o tic e ap p ear in r e a l e s t a t e fin a n c in g a d v e r t i s e m e n t s . b e c a m e e f f e c t iv e on M ay 1, 1 9 7 2 . T h is p o lic y s t a te m e n t Our ro u tin e e x a m in a tio n p r o c e s s s in c e th en h a s includ ed c h e c k s on bank c o m p lia n c e with the r e q u i r e m e n t s fo r a d v e r t is in g and the r e q u ir e d lo bby p o s t e r on f a i r h o u sin g . We hav e found r e l a t i v e l y few v io l a tio n s , and th o s e hav e b e e n p r o m p tly c o r r e c t e d . In the f a l l of 19 7 2 , we p r o p o s e d so m e r e g u la tio n s on f a i r hou sing th at involved r e c o r d - k e e p i n g r e q u i r e m e n t s , and in D e c e m b e r we h eld two days of h e a r in g s on th e s e p r o p o se d r e g u la t io n s . T h e s e re g u la tio n s w e r e n e v e r is s u e d b e c a u s e we w e r e not co n v in ce d that the r e c o r d - k e e p in g r e q u i r e m e n t s would p ro v id e m e a n in g fu l data f o r m o n ito rin g f a i r housing lending p r a c t i c e s . In the sp rin g of 1974, we b eg an a p ilo t s u r v e y along w ith the C o m p t r o lle r of the C u r r e n c y , the F e d e r a l R e s e r v e and the F e d e r a l H om e L o a n B an k B o a r d to t e s t v a r io u s ty p es of r e p o r tin g f o r m s to d e te r m in e w hat a f e a s i b l e and e f f e c t iv e r e c o r d - k e e p in g s y s t e m would in v o lv e . I w ill c o m m e n t in a few m in u te s on so m e of the p r o b le m s we e n c o u n te r e d in th at p ilo t s u r v e y . In any c a s e , a f t e r re v ie w of a ll the data, we co n clu d ed th at u s e of any of th e t h r e e d if f e r e n t ty p es of re p o r tin g f o r m s would not en ab le us to d e te c t p a t t e r n s of d is c r im in a t io n . It is f a i r to sa y th en , that even now we hav e not d e te r m in e d the b e s t ro u te to tak e to a s s u r e o u r s e l v e s th at d i s c r i m i nation in housing f in a n c e h a s b e en e lim in a te d . A ll during th is p e r io d , we h av e r e c e i v e d p e titio n s and p r o p o s a ls su b m itte d by c i v i l r ig h t s o r g a n iz a tio n s u rging us to do th in g s. Many of th e m a p p e a r e d to b e c o s t l y and b u r d e n s o m e , and not n e c e s s a r i l y e f f e c t iv e . We h a v e a ls o r e c e i v e d c o m m e n t s f r o m b a n k e r s te llin g us th at nothing should be done s in c e b a n k s do not d i s c r i m i n a t e in m o r tg a g e fin a n c in g . T he p r o b le m is a v e r y d iffic u lt one f o r r e a s o n s w hich I w ill g et into s h o r tly . R e g a rd le ss of the d if f ic u lt ie s of the p r o b le m , h o w e v e r , we hav e b e c o m e in c r e a s i n g l y s u b je c t to c r i t i c i s m f r o m the C o n g r e s s and o t h e r s that we hav e not m e t the r e s p o n s i b i l i t i e s th at th ey would lik e us to a s s u m e . P a r t of o u r p r o b le m in e n fo r c in g the law is th at the c o n c e p t of d is c r i m i n a t i o n i s a v e r y d iffic u lt one and it s e x e r c i s e c a n ta k e p la c e in su b tle w a y s . D i s c r i m i n a t i o n co n n o te s the e x c lu s io n of s o m e individual o r group of ind iv id u als f r o m s o m e a c t iv i t y on the b a s i s of one o r m o r e id e n tifia b le a t t r ib u t e s p o s s e s s e d by the ind ivid ual c o n c e r n e d . So m e f o r m s of d i s c r i m i n a t i o n r e p r e s e n t in d e f e n s ib le b i a s e s (fo r e x a m p le , e x c lu s io n s f r o m c e r t a i n jo b s on the b a s i s of s e x o r r a c e ) , and w o rk to the u ltim a te d isa d v a n ta g e of both the a f f e c te d ind ivid uals and s o c i e t y a s a w hole, w hile o th e r f o r m s of d is c r i m i n a t i o n m a y be a p p r o p r ia t e and, in f a c t , b e n e fit s o c ie t y (fo r e x a m p le , the e x c lu s io n of c o n f ir m e d k le p to m a n ia c s f r o m jo b s a s bank t e l l e r s ) . Our e c o n o m ic s y s t e m i s b a s e d on a type of d is c r i m i n a t i o n . In our m a r k e t e c o n o m y , an i n c r e a s e in the p r i c e of any goods e x c lu d e s c e r t a i n m e m b e r s of s o c ie t y f r o m c o n su m in g the goods o r r e s t r i c t s t h e i r p u r c h a s e s be lo w w hat they would have d e s ir e d a t the p r e v io u s p r i c e . T hat i s , if a c o m m o d ity i s in s h o r t supply, it s p r i c e r i s e s so th at the supply is - 8 - a llo c a t e d to th o s e to whom it i s w o rth the m o s t and, h e n c e , d i s c r i m i n a t e s a g a in s t o t h e r s . But w hile m a r k e t s a r e in h e r e n tly d i s c r i m i n a t o r y , they should be d i s c r i m i n a t o r y with r e s p e c t to e c o n o m ic p heno m ena only. Two in d ivid u als with v a s t ly d if f e r e n t in c o m e s would be e x p e c te d to r e c e i v e d if f e r e n t am o u n ts of c r e d i t w ith, p e r h a p s , d if f e r e n t c r e d i t t e r m s . On the o th e r hand, two ind ivid u als with s i m i l a r e c o n o m ic c h a r a c t e r i s t i c s but with d if f e r e n t sk in c o l o r s would be e x p e c te d to r e c e i v e e s s e n t i a l l y the s a m e am ou nt of c r e d i t on e s s e n t i a l l y the s a m e t e r m s . It is p r i m a r i l y n o n e c o n o m ic d i s c r i m i n a t i o n with w hich the C iv il R ig h ts A c t i s c o n c e r n e d . It i s v e r y d iffic u lt to d e te c t o r to m e a s u r e th is n o n e co n o m ic d i s c r im in a t io n b e c a u s e , in o r d e r to do so, it is n e c e s s a r y to c o n t r o l f o r e c o n o m ic c h a r a c t e r i s t i c s . If th is is not done, a finding of a p p a re n t s y s t e m a t i c d i s c r i m i n a t i o n in, sa y , c r e d i t a llo c a t io n , to one group of ind ivid u als m a y be due to v a lid e c o n o m ic c o n s id e r a t io n s r a t h e r than n o n e c o n o m ic b i a s e s . If b l a c k s , on a v e r a g e , hav e lo w e r in c o m e s than w h ite s, we should not be s u r p r is e d to find th at b la c k s r e c e i v e a s h a r e of m o r tg a g e lo a n s m ad e th at is l e s s than p r o p o r tio n a l to t h e i r n u m b e r in the population. Bu t f o r th o s e b l a c k s who hav e c o m p a r a b le in c o m e s with w h ite s , lo an r e j e c t i o n s should not be at a h ig h e r r a t e . We m u s t a ls o ta k e a cco u n t of the s iz e of the lo an r e q u e s t e d in r e la t io n to the a p p r a is e d v alu e of the p r o p e r ty . But a r e a p p r a i s a l s in flu n ced by the r a c i a l c o m p o s itio n of the n e ig h b o rh o o d ? T h e s e e c o n o m ic f a c t o r s , e n o r m o u s ly c o m p lic a te d by t h e m s e l v e s , m u s t be a n a ly z e d th o ro u g h ly b e f o r e we ca n say anything about n o n e co n o m ic d i s c r im in a t io n . - 9 - A f u r t h e r c o m p lic a tio n in the e n f o r c e m e n t of the C iv il R ig h ts A c t is that it s c o v e r a g e is m u ch b r o a d e r than s im p ly a f f i r m a t i v e o r n e g a tiv e d e c is io n s on lo an a p p lic a tio n s . The A c t f o r b id s d i s c r i m i n a t i o n with r e s p e c t to dow np aym ents, i n t e r e s t r a t e s , m a t u r i ty and o th e r t e r m s o r co n d itio n s of the m o r tg a g e lo a n . A b o r r o w e r m a y f e e l that he is d i s c r i m i n a t e d a g a in s t when h is lo an a p p lic a tio n is r e je c t e d , and he m a y have s o m e b a s i s f o r that ju d g m e n t. He m a y not know he i s being d is c r im in a t e d a g a in s t with r e s p e c t to t e r m s of the lo a n th at is g r a n te d , s i n c e , at l e a s t under p r e s e n t in s titu tio n a l a r r a n g e m e n t s , he d o es not n e c e s s a r i l y know the p r e v a ilin g p o lic y of the in s titu tio n with r e s p e c t to m a t u r i t i e s , downp a y m e n ts o r even i n t e r e s t r a t e s . In o u r e x p e r i e n c e s with s u r v e y s and r e c o r d - k e e p i n g p r o p o s a ls , we have found it d iffic u lt to s p e c if y in f o r m a t io n w hich would p r o v id e s u f f i c i e n t e v id e n c e of d is c r i m i n a t i o n to p r o v e th at the law h a s b e e n v io la te d . I r e c o g n i z e a ll t h e s e p r o b le m s a s w e ll a s so m e o t h e r s I have not m e n tio n e d . I think th ey e x p la in why the F D IC and o th e r banking s u p e r v i s o r y a g e n c ie s have not b e e n s u c c e s s f u l in p ro m u lg a tin g r e g u la tio n s a im e d at e n f o r c e m e n t of the C iv il R ig h ts A c t. It is p o s s i b l e th at r a c i a l o r r e lig io u s d i s c r i m i n a t i o n m a y be q u a n tita tiv e ly an in s ig n i f ic a n t p r o b le m in the sa v in g s bank in d u s tr y . v iew . B u t o u r in f o r m a t io n does not e n a b le m e to c o n f ir m th at I a m s u r e a l l of you f e e l th at r a c i a l d i s c r i m i n a t i o n does not p lay any r o le in you r b a n k 's m o r t g a g e lending d e c i s i o n s . Bu t ca n you know f o r s u r e th at a l l you r lo a n o f f i c e r s a r e condu cting t h e m s e l v e s in a c c o r d with bank p o lic y ? How do you know? 10 - It m a y w e ll b e , a s m an y b a n k e r s have a r g u e d , that the c o s t s of m o r e v ig o r o u s e n f o r c e m e n t of the law w ill s u b s ta n tia lly outweigh the b e n e f it s . T h e r e is a law on the bo ok s p r o h ib itin g d is c r im in a t io n , and we have f e lt an o b lig a tio n at the F D IC to d e te r m in e the e x i s t e n c e and e x te n t of d i s c r i m i n a t i o n and d e v is e a p p r o p r ia t e e n f o r c e m e n t p r o c e d u r e s to in s u r e c o m p lia n c e w ith the law . If it tu r n s out to be v e r y c o s t l y to e n f o r c e this la w , it w ill be up to C o n g r e s s to deal with the situ a tio n . b r in g in f o r m a tio n on e n f o r c e m e n t c o s t to t h e i r a tte n tio n . We w ill c e r t a i n l y In any c a s e , I p e r s o n a l l y a m in a g r e e m e n t with the C o n g r e s s io n a l view th at the F D IC should co ntinu e to ta k e a c tio n to m a k e s u r e th at i l l e g a l d is c r i m i n a t i o n does not e x i s t . In the p a s t , so m e b a n k e r s have had the view th at s in c e they f e e l th at t h e r e is no r e a l p r o b le m in th is a r e a , it w as not w o rth w h ile to devote m u ch e n e r g y to thinking about r e a l i s t i c and e f fe c t iv e s o lu tio n s . If I do nothing e l s e with m y c o m m e n ts today, I would lik e to chan ge that v iew . I would lik e to e n c o u r a g e e a c h of you to think about th is p r o b le m , and l e t m e know what s te p s you f e e l ca n be ta k e n th at w ill r e p r e s e n t a c c e p t a b le bu rdens f o r the v a s t m a j o r i t y of sa v in g s b an k s th at a r e not d is c r im in a t in g in m o rtg a g e le n d in g , y e t w ill be e f f e c t iv e in f e r r e t i n g out th o s e few situ a tio n s w h e re d i s c r i m i n a t i o n m a y b e taking p l a c e . W r ite m e . G iv e m e y o u r s u g g e s tio n s . At l e a s t t e l l us how you c o n v in c e y o u r s e l v e s and y ou r t r u s t e e s o r d i r e c t o r s th at y o u ’ r e not v io la tin g the law . XI It m a y b e help fu l to you r thinking on th is m a t t e r if I d e s c r i b e so m e of the ste p s th at hav e b e e n ta k e n , o r h av e b e e n p r o p o se d , in the p ast. O ur f i r s t step in im p le m e n tin g the law a g a in s t d i s c r im in a t io n w as e a s y and n o n c o n t r o v e r s i a l . m ad e d i s c r i m i n a t i o n i l l e g a l . We told the ban k s th at t h e r e w as a law that So m e b a n k e r s m a y hav e b e e n d is c r im in a t in g in r e a l e s t a t e lending and f e l t th at it w as t h e i r p r e r o g a t iv e to do so . In fo rm in g th e m that the law now p r o h ib ite d su ch d i s c r i m i n a t i o n p r o b a b ly had s o m e e f f e c t . A f t e r a l l , b a n k e r s a r e b a s i c a l l y law abid in g . 1 b e lie v e it is q uite p o s s i b l e , f o r e x a m p le , th at p r i o r to 19 7 4 , s o m e b a n k e r s did d i s c r i m i n a t e in r e a l e s t a t e lending to w om en. We h e a r d s e v e r a l s t o r i e s of u n ju s tif ia b le d i s c r i m i n a t i o n a g a in s t w om en at our 1972 h e a r in g . Sex d is c r i m i n a t i o n w as not ill e g a l at th at t i m e , and I ana s u r e th at sim p ly p a s s in g a law m ak in g su ch d i s c r i m i n a t i o n i l l e g a l and b rin g in g th is a c t io n to the a tte n tio n of the b a n k e r s had a s ig n if ic a n t im p a c t in re d u cin g su ch d i s c r i m i n atio n . T he n e x t step w as so m ew h at h a r d e r . We r e q u ir e d b an k s to includ e a s t a te m e n t in r e a l e s t a t e a d v e r tis in g saying that they w e r e a f a i r hou sing le n d e r and to p o s t a n o tic e in t h e i r lobby a le r t in g bank c u s t o m e r s th a t d i s c r i m i n a t i o n in m o r tg a g e lending w as i l l e g a l , T he lo bby p o s t e r in f o r m s the c u s t o m e r with a c o m p la in t th at he c a n t e l l e it h e i the F D IC o r HUD of the c o m p la in t. W hile th is kind of r e q u ir e m e n t s e e m s r a t h e r in n ocu o u s, s o m e of o u r s t a ff q u e stio n e d w h e th e r th is w as an a p p r o p r ia te step . A f t e r a l l , m o s t b a n k e r s a r e law abid ing, and m an y a r e offended by being r e q u ir e d to p o st a n o tic e su g g estin g they m a y be v io la tin g the law . 12 - None of t h e s e r e q u ir e m e n t s have g e n e r a t e d m an y c o m p la in ts f r o m p o te n tia l b o r r o w e r s . S in c e 1 9 6 8 , the F D IC h a s r e c e iv e d v e r y few c o m p la in ts r e g a r d in g d i s c r i m i n a t i o n in m o r tg a g e lend in g. T h is m a y m e a n th a t t h e r e i s no su ch d i s c r im in a t io n , but it m a y a ls o r e f l e c t an u n w illin g n e s s of lo a n a p p lic a n ts to g et involved in the c o m p la in t p r o c e d u r e , a s k e p t i c i s m on t h e i r p a r t about o u r s i n c e r i t y in follow ing up on c o m p la in ts , an ig n o r a n c e about th e p r o c e s s of c o m p la in in g , o r any of a n u m b e r of o th e r reasons. T h e c i v i l r ig h ts g rou p s hav e told us th at r e l i a n c e on the c o m p la in t p r o c e d u r e i s n e c e s s a r i l y i n e f f e c t iv e , and th at we could not e x p e c t a l a r g e v o lu m e of c o m p la in ts . T hey a r g u e th at th o s e d i s c r i m i n a t e d a g a in s t h av e no fa ith th at a c t io n w ill be ta k e n u n le s s they h av e in d isp u tab le p r o o f th at th ey w e r e v i c t i m s of il l e g a l d i s c r i m i n a t i o n and th at e x a m p le s of $uch p r o o f a r e v e r y r a r e ; d is c r im in a t io n is g e n e r a l l y m u ch m o r e su b tle o r s o p h is t ic a t e d . T h e y a ls o a r g u e th at m i n o r it y a p p lic a n ts go to l e n d e r s who m a k e lo a n s to m i n o r it y a p p lic a n t s , and that w ord ’’g e ts a r o u n d " a s to who w ill and who w o n 't g iv e a r e a l e s t a t e lo an to a q u a lifie d m i n o r it y o r a w o m an. I r e c o g n i z e th e r e is so m e v a lid ity to t h e s e a r g u m e n ts , but it is d iffic u lt to co n clu d e th at d is c r im in a t io n is w id e s p r e a d when we r e c e i v e so few c o m p l a in t s . T h e r e a r e s te p s that could be ta k e n to g e n e r a t e m o r e c o m p la in t s . We m ig h t s o l i c i t c o m p la in ts m o r e a c t iv e ly by, f o r e x a m p le , running a n e w s p a p e r a d v e r t is in g ca m p a ig n on the law , and urging b o r r o w e r s to w r it e us if they h av e any s u s p ic io n s that th ey hav e b e e n d is c r im in a t e d a g a in s t , o r ev en if th ey s u s p e c t th at a g iv en in s titu tio n i s not a f a i r housing len d er. O b v io u sly , su ch a p r o g r a m would be e x p e n s iv e , m ig h t sim p ly g e n e r a t e u n ju s tifie d c o m p l a in t s , and m ig h t a p p e a r to su g g e st th at we b e lie v e th at d i s c r i m i n a t i o n is w id e s p r e a d . I a m c e r t a i n l y not e n d o rsin g su ch a p r o g r a m at th is t i m e , but it m ig h t be one way of co n v in cin g the pu blic that we ta k e the c o m p la in t p r o c e s s s e r i o u s l y . The p r o b le m b e c o m e s even m o r e d iffic u lt when we ta lk about re co rd -k eep in g re q u ire m e n ts. T he f i r s t p ie c e of in f o r m a t io n th at b e c o m e s n e c e s s a r y in any r e c o r d - k e e p i n g p r o g r a m d e sig n e d to m o n it o r c o m p lia n c e with f a i r lending r e q u i r e m e n t s i s in f o r m a tio n on the r a c e , r e lig io n , s e x , and n a tio n a l o r ig i n of the b o r r o w e r . M any b a n k e r s d is lik e a sk in g a lo an a p p lic a n t about h is r a c e o r r e lig io n , and m an y b o r r o w e r s would be offended by bein g a s k e d su ch q u e s tio n s . Su ch in f o r m a t io n r e a l l y is none o f the lending o f f i c e r ' s b u s in e s s (if he is doing h is jo b c o r r e c t l y ) . M oreover, t h e r e m a y be c o n c e r n on the p a r t of the b o r r o w e r th at su ch in fo r m a tio n w ill be u sed to d i s c r i m i n a t e a g a in s t h im . In any c a s e , it i s h a r d to r e q u ir e the fu r n is h in g of su ch in fo r m a t io n , and m an y b o r r o w e r s would d e c lin e to f u r n is h it v o lu n t a r ily . On our p ilo t s u r v e y s , f o r e x a m p le , we found th at about 18 p e r c e n t of m o r tg a g e a p p lic a n ts r e fu s e d to f i l l out the v o lu n ta ry r a c i a l q u e s t io n n a ir e . A n o th e r p r o b le m with the r e c o r d - k e e p i n g r e q u i r e m e n t s is th at m an y a p p lic a tio n s a r e d isp o se d of i n f o r m a lly , even b e f o r e th ey g et to the 14 - s ta g e of the w r it t e n a p p lic a tio n . In s o m e c a s e s , te le p h o n e o r o th e r c a s u a l i n q u ir ie s a r e r e j e c t e d with the s im p le s t a te m e n t th a t the bank i s not m aking m o r t g a g e lo a n s a t the p r e s e n t ti m e . T he b a n k e r who w ants to d i s c r i m i n a t e m a y find it f a i r l y e a s y to d is c o u r a g e the filin g of an a c t u a l a p p lic a tio n . T h is m ig h t th en le a d into th e need f o r so m e s o r t of log of i n f o r m a l in q u ir ie s o r ev en phone c a l l s . f ic u lt to e n f o r c e . We r e c o g n i z e th at th is could be b u r d e n s o m e and d if In s o m e c a s e s , d i s c r i m i n a t i o n m a y o c c u r even b e f o r e a p o te n tia l lo an a p p lic a n t a p p r o a c h e s the bank. He m a y b e d is c o u r a g e d by a r e a l e s t a t e a g e n t o r b r o k e r , e i t h e r with o r without the b a n k 's know ledge o r a p p r o v a l. S in c e the la w s a r e a im e d a t r a c i a l , e th n ic , r e lig io u s and s e x d i s c r i m i n a t i o n , and not d i s c r i m i n a t i o n on an e c o n o m ic b a s i s , any s o r t o f r e p o r t in g o r r e c o r d - k e e p i n g d e sig n e d to p r o v e a c a s e of d i s c r i m i n a t i o n m u s t in clu d e d e ta ile d in f o r m a tio n on th e f in a n c ia l situ a tio n of the b o r r o w e r and the p r o p e r t y being fin a n c e d . We hav e not y e t d e te r m in e d what s o r t of r e p o r t in g o r r e c o r d - k e e p i n g i s e s s e n t i a l to m o n it o r c o m p lia n c e with the la w . T h e c i v i l r ig h t s g ro u p s h av e told us th a t, in t h e i r v iew , we have to be a l e r t to p a t t e r n s of d i s c r i m i n a t i o n and, h e n c e , s o m e s o r t of r e c o r d k ee p in g i s n e c e s s a r y . To the e x te n t th at r e d - lin in g f i t s th is c a t e g o r y , the H om e M o r tg a g e D i s c l o s u r e A c t r e c e n t l y p a s s e d should h elp r e s o l v e th is p r o b le m s in c e it m a n d a te s th a t c e r t a i n r e c o r d s sh a ll be k ep t. O b v io u sly , h o w e v e r , r e d - lin in g d o e s n 't c o v e r a l l p o s s i b l e p a t t e r n s of d is c r i m i n a t i o n . 15 - It h a s b e e n su g g e ste d th at o u r e x a m i n e r s a r e not s k ille d enough n o r t r a i n e d enough in the kind of in v e s tig a tiv e w o rk n e c e s s a r y to d e te c t d is c r i m i n a t i o n , and th at we m ig h t do b e t t e r if we had F B I a g e n ts p a r t ic ip a t in g in e x a m in a tio n s a im e d at c o m p lia n c e with c i v i l r ig h t s l e g i s la t io n . We h av e not b e e n co n v in ce d of t h is , h o w e v e r , and would p r e f e r to t r a i n our own s ta ff to the e x te n t n e c e s s a r y . We hav e b e e n devoting a p a r t of our e x a m in e r tr a in in g p r o g r a m to the f a i r ho u sing a r e a , and we a r e developing an expanded tr a in in g p r o g r a m th at w ill in clu d e in v e s tig a to r y te c h n iq u e s , I think th is d e s c r ip t io n of s o m e of the p o s s i b l e te c h n iq u e s in d ic a t e s the s o u r c e of m y c o n c e r n and f r u s t r a t i o n . We r e c o g n i z e the s h o r tc o m in g s of v a r io u s e n f o r c e m e n t te c h n iq u e s , but y/e m u s t e n f o r c e the law and m e e t o u r r e s p o n s i b i l i t i e s . I would lik e to r e t u r n b r i e f l y to the s p e c i f i c p r o b le m of s e x d iscrim in a tio n . As I no ted , in th e c o u r s e of the h e a r in g s we h eld on f a i r m o r t g a g e lend in g, it w as c l e a r that the m o s t co n v in cin g e v id e n c e of d i s c r im in a t io n r e l a t e d to d i s c r i m i n a t i o n on the b a s i s of s e x . N u m ero u s do cu m ented in s t a n c e s of su ch d i s c r i m i n a t i o n w e r e p r e s e n t e d . of s e x d i s c r i m i n a t i o n i s a p a r t i c u l a r l y knotty o n e. T he p r o b le m A s I have m e n tio n e d , t h e r e a p p e a r s to b e stro n g e v id e n c e th at d i s c r im in a t io n on the b a s i s of s e x h a s tak e n p la c e in b a n k s and o th e r f in a n c ia l in s t itu t io n s , and I a m in sym pathy w ith the C o n g r e s s io n a l d e c is io n to do so m e th in g about it. I a ls o r e c o g n i z e , h o w e v e r , th a t w om en do b e a r c h ild r e n and fr e q u e n tly le a v e the - 16 - w o r k f o r c e to r e a r th o s e c h i ld r e n , although it ca n a ls o be a rg u e d (1) that w o m en now hav e m o r e c o n t r o l o v e r the q u e stio n o f p r e g n a n c y o r not, and (2) th a t th o s e w o m en who n eed an in c o m e do not le a v e the w o rk f o r c e f o r a s u s ta in e d p e r io d when th ey hav e a ch ild . A lim o n y and ch ild su pport p a y m e n ts a r e p r o b a b ly not a s stead y and r e l i a b l e a s o u r c e of in c o m e a s s a l a r i e s and w a g e s . T h u s, one m ig h t a r g u e th at d i s c r i m i n a t i o n a g a in s t w om en in the p a s t had m o r e of an e c o n o m ic foundation than the r a c i a l and r e lig io u s d i s c r i m i n a t i o n c o v e r e d by the C iv il R ig h ts A c t of 1968, E v e n a f t e r r e c o g n iz in g t h i s , h o w e v e r , it a p p e a r s th at f o r som e t i m e , m an y b a n k e r s did not fo llo w v e r y en lig h ten ed p o l i c i e s with r e s p e c t to lending to w om en. T h e r o le of w om en in o u r e co n o m y h a s ch an ged , with the m a j o r i t y now p a r t of the l a b o r f o r c e , but b a n k e r s did not a d ju s t sw iftly to th is profound s o c i a l c h a n g e . I c o n c e d e th at the ground r u l e s on lending to w om en a r e not v e r y c l e a r cu t, but we do intend to m e e t o u r o b lig a tio n s to e n f o r c e f a i r lending r e q u i r e m e n t s in th is c a s e , a s in the c a s e of a ll o th e r a r e a s . M any b a n k e r s hav e a lr e a d y developed c r e d i t sta n d a r d s fo r d ealin g with lending to w om en in an e q u ita b le and n o n d is c r im in a t o r y m anner, and we e n c o u r a g e the r e m a in in g b a n k e r s to fo llow su it. B a n k e r s , ju s t lik e o th e r c i t i z e n s , do not p a r t i c i p a t e enough in a p o s itiv e w ay when l e g i s l a t i o n and r e g u la tio n s a r e being d r a fte d . T h ey h a v e a te n d en cy to a r g u e th at c e r t a i n law s o r r e g u la tio n s a r e u n n e c e s s a r y , and th en d e p a r t f r o m the s c e n e . P e r h a p s the s u p e r v is o r y a g e n c i e s a r e so m e w h at a t fa u lt in not m o r e a c t iv e ly s o lic it in g c o m m e n ts and su gg estio n s 17 - f r o m the banking c o m m u n ity and giving th e m the w eight th ey d e s e r v e . At the s a m e t i m e , I hope you a l l r e a l i z e th a t it i s not the p r a c t i c e of the F D IC to put out r e g u la t io n s f o r c o m m e n t when a d e c is io n h a s a lr e a d y b e e n m a d e . H e r e , w h e r e we a r e not at th is t i m e putting out ad d itio n al r e g u la t io n s f o r c o m m e n t , but w h e r e we a r e w r e s t lin g with th e p r o b le m s of e n f o r c e m e n t in a s p e c i f i c a r e a , we c l e a r l y have an open m ind a s to the b e s t way to p r o c e e d , X a m e a r n e s t l y s o lic it in g y o u r s u g g e s tio n s and hope you w ill be a b le to c o m e up with id e a s th at w ill be h elp fu l f o r a ll of u s .
@FedFRASER