Type of holder, and type of property TABLE 2.-MORTGAGE DEBT OUTSTANDING-Continued [Millions of dollars, end of period] Includes loans held by nondeposit trust companies but not bank trust departments. * Outstanding principal balances of mortgages backing securities insurer or guaranteed by the agency indicated. Other holders include mortgage companies, real estate investment trust, State and local credit agencies, State and local retirement funds, noninsured pension funds, credit unions, and U.S. agencies for which amounts are small or separate data are not readily available. Note: Based on data from various institutional and Government sources, with some quarters Source: Federal Reserve Bulletin, January 1979. RIGHTS COMMISSION CHICAGO STUDY SHOWS INSURANCE FIRM REDLINING CHICAGO (UPI)-Property owners in areas of Chicago with large numbers of minority and low-income residents are still denied adequate property insurance coverage, a report released by the U.S. Commission on Civil Rights said. The recent report points to discriminatory underwriting practices of insurance companies as the chief reason for lack of insurance availability. The 56-page report, entitled "Insurance Redlining: Fact Not Fiction," was prepared by the Midwest Advisory Committees to the commission. "Despite industry claims that its underwriting practices are based on loss experience and other objective, empirical data, the committees find that marketing decisions are frequently made on the basis of subjective and unfairly discriminatory factors," committee officials wrote. "In its examination of underwriting practices within the city of Chicago, the committees find that communities containing a concentration of minority or low-income residents or older homes face insurance availability problems that cannot be explained by the two major causes of compensable loss: fire and theft," they wrote. Theresa Cummings, head of the Illinois advisers to the commission, told a news conference, "At a time when public and private sector organizations and individual homeowners are making efforts to revitalize inner-city neighborhoods, it is frustrating when such efforts are blocked by the denial of property insurance." The panels found evidence of: Placement of insurance agents selectively in order to reduce the opportunity to secure business in certain areas. Refusing, limiting or varying insurance availability due to subjective evaluations by agents or by inspectors that certain areas are "deteriorating" or "changing." Requiring inspections in certain locations of the state but not in others; varying underwriting practices solely by zip code. Refusing to accept an application because it was previously rejected by another company. The committees recommended City Council enactment of an anti-redlining ordinance, Justice Department investigation of insurers for possible violation of the Sherman Antitrust Act and investigation by the Illinois Department of Insurance for possible violation of state antidiscrimination laws. Senator BAYH. Good morning Mrs. Miller. We appreciate your being with us this morning. TESTIMONY OF ANITA MILLER, MEMBER, FEDERAL HOME LOAN BANK BOARD Mrs. MILLER. Good morning. I am pleased to have the opportunity to testify before the subcommittee. Mr. Chairman, I am pleased to be able to testify before you today on behalf of the Federal Home Loan Bank Board in support of S. 506, the Fair Housing Amendments Act of 1979. Equal access to decent housing for all Americans is a goal which this Board is actively pursuing and to which I have personally devoted many years of effort. We believe that the changes in the existing law proposed by this bill are essential if this goal is to be achieved and we are prepared to devote our full resources to insuring that discrimination in housing finance is eliminated. In my testimony before you today, I will concentrate on the following parts of the bill: One: The need for cease and desist power in HUD; Two: The bill's clarification of the prohibition against redlining by lenders and the prohibition of discrimination by insurance vendors and in the secondary mortgage market; Three: The amendment to section 808 (d) clarifying the Bank Board's authority and obligation to enforce the Fair Housing Act; Four: Section 810 (a) (4)'s strengthening of the requirement that all Federal agencies cooperate in enforcing this act and in avoiding duplication of effort and excess paperwork; and Five: The Bank Board's program for enforcing the Fair Housing Act. I. THE NEED FOR INCREASED ENFORCEMENT POWERS FOR HUD As a Federal agency which has mounted a full scale effort to eliminate discrimination, in our case, in the offering of credit by the sayings and loan industry, we will call upon our own experience in commenting on the shortcomings of the current law. It has long been evident that the enforcement powers given to the Department of Housing and Urban Development are extremely inadequate and thereby have affected adversely HUD's ability to carry out congressional mandates to eradicate discrimination in housing. This is particularly true relative to such areas as the rental of housing which are not covered explicitly by the enforcement provisions of similar laws such as the Equal Credit Opportunity Act-ECOA. We know from our own efforts to achieve fair housing and equal credit opportunity that without the extensive enforcement powers we possess by virtue of being a Federal financial regulatory agency, the effectiveness of our enforcement efforts would be curtailed greatly. As an agency which has cease and desist authority, we are very aware of its importance to fair housing enforcement. We agree with the sponsors of this bill that giving HUD the necessary powers to enforce the Fair Housing Act is essential and we support these provisions of the bill. Let me turn now to those provisions of the bill which affect the Bank Board's operations under the act. II. (A) REDLINING To date, the Bank Board is the only Federal regulatory agency to adopt regulations under the Fair Housing Act and related Federal statutes outlawing redlining, the discrimination against certain geographic areas by mortgage lenders. Our interpretation that section 805 prohibits discrimination against a certain geographic area because of the racial or minority characteristics of residents of that area was upheld by the court in Laufman v. Oakley Bldg. & Loan Co., the first redlining case under the Fair Housing Act. However, we agree that there is sufficient uncertainty on this subject to merit a clear and unequivocal declaration by Congress that redlining, in all forms, is indeed prohibited by this act. We would also like to add that we agree with your use of the term "vicinity" in this section of the bill. This is the term which was used in our regulation on redlining which was upheld in Laufman. The use of this term avoided the problem of defining a "neighborhood" when a particular dwelling was located on what might be considered to be a neighborhood's boundary. The term "vicinity" limits the area under consideration to that surrounding the dwelling concerned. (B) PROHIBITING DISCRIMINATION BY INSURANCE VENDORS We also support the bill's prohibition of discrimination by those in the business of insuring against hazards. Although the Bank Board regulates only the thrift industry and has no direct authority over providers of insurance, we are intimately familiar with the importance of hazard insurance to the providers of mortgage credit. A prospective homeowner who cannot get an insurance company to insure his or her purchase against destruction by fire and other perils is as effectively denied the opportunity to borrow funds to finance that purchase as the purchaser who is redlined by a lender. We support the addition of this provision. (C) PROHIBITING DISCRIMINATION IN THE SECONDARY MORTGAGE MARKET In what appears to be an effort to clarify the act's coverage of the secondary mortgage market, S. 506 adds a new subsection (b) to section 805 which makes it unlawful for any person or other entity to refuse to buy a debt, or negotiable evidence of a debt, secured by real property because of the race, color, religion.. sex, handicap, or notional origin of persons residing in or in the vicinity of such real property. As the Board of Directors for the Federal Home Loan Mortgage Corporation, one of the Government entities which is active in the secondary mortgage market, we have long held that discrimination by those participating in the secondary mortgage market is prohibited by current law. We read section 804 (a) broadly and as prohibiting all practices, including those of investors in the secondary market, which have the effect of making a dwelling unavailable because of a prohibited basis. In addition, the Equal Credit Opportunity Act prohibits discrimination in the secondary market by prohibiting discrimination by a creditor. Since the requirements of the secondary market purchaser are likely to influence the terms under which an originating lender who wishes to sell mortgages in the secondary market will lend to a prospective borrower, we firmly believe that discrimination in secondary market. transactions should be prohibited. Recognizing the importance of the criteria used for purchasing mortgages in the secondary market, we have concentrated on the Mortgage Corporation's underwriting policies and application and appraisal forms to assure its compliance with the Fair Housing Act. The Corporation has revised its guidelines and documents to stress the Corporation's commitment to nondiscrimination and its antiredlining policies. In these efforts, the Corporation has sought the counsel of the Justice Department. III. SECTION 808 (d)'s CLARIFICATION OF THE BANK BOARD'S AUTHORITY UNDER THE FAIR HOUSING ACT The Bank Board is particularly pleased with the bill's amendment to section 808 (d). Here is a case where there truly is the lack of clarity as to whether Federal financial regulatory agencies such as the Bank Board are covered by title VIII. Since the act concentrates primarily on HUD's, and secondarily on the Department of Justice's powers, this is the only section which recognizes other Federal agencies' authority-but more importantly responsibility-to enforce the Fair Housing Act. The present section requires executive departments and agencies with "programs and activities relating to housing and urban development affirmatively to further the purposes" of the act. This very general statement has made it very difficult for Federal agencies to determine the extent of their responsibilities under the act. While the Bank Board has always considered that it had the responsibility to further the purposes of the act, our interpretation of the extent of our responsibility differs from that of other Federal agencies of their responsibilities under the act. It should be noted that all the Federal financial regulatory agencies are required to enforce the Equal Credit Opportunity Act whose coverage overlaps much of that of the Fair Housing Act. However, although the ECOA gives the Bank Board and the other Federal financial regulatory agencies explicit authority to prevent discrimination by creditors, there are several areas which the Fair Housing Act covers which the ECOA does not. Most important of these are the provisions of section 805 which we have interpreted, and this bill reinforces, as prohibiting redlining. It is this section, in conjunction with our enabling statutes, which forms the basis for our redlining regulation. Thus, although the Bank Board and other Federal financial regulatory agencies have independent authority to prohibit many of the actions covered by the Fair Housing Act, clear authority under the act is needed to authorize action on some of the most critical aspects of housing discrimination. For these reasons, we welcome S. 506's addition of the phrase "including any Federal agency having regulatory authority over financial institutions" to section 808 (d). This amendment clearly states Congress's intention to authorize, and require, these agencies to enforce the Fair Housing Act as it affects the financial institutions they regulate. We would like to request, in addition, that the committee include some language in the report accompanying this bill which, much like section 704 of the ECOA, would state that in enforcing this act the Federal financial regulatory agencies are authorized to use those enforcement powers they may have under their individual enabling acts. In our case, this would include our enforcement powers under the Home Owners' Loan Act, the National Housing Act, and the Federal Home Loan Bank Act. Such language would make it clear that we are authorized to use our own cease and desist authority and related pow ers in fair housing enforcement as well as in the other areas within our jurisdiction. IV. COOPERATION IN ENFORCEMENT Finally, we support the addition of section 810 (a) (4) which formalizes and clarifies the informal efforts we have made in the past to cooperate with HUD and the Justice Department to coordinate our mutual fair housing enforcement efforts. We work closely with HUD on a number of projects. |