When the Federal Home Loan Bank Board announced anti-redlining regulations 10 days ago, Vice President Walter Mondale called them "the strongest action ever taken by a federal agency to prohibit mortgage credit practices which discriminate against older neighborhoods."
The regulations, if approved, would prohibit denials of loans or less favorable terms due to the age or neighborhood location of a dwelling. They would require FHLBB members to have on paper underwriting standards that can be reviewed regularly bu the board. To enforce the regulations, the FHLBB can issue cease and desist orders to any institution found guilty of violations, or it can get a court order stopping the prohibited practices.
Reaction has been mixed . Thrift institutions and lower-income citizens groups alike applaud the intent of the regulations, but differ on their opinions of the fairness and effectiveness of specific provisions designed to carry out that intent.
The U.S. League of Savings Associations immediately took the board to task for laying the blame for the problems of inner city housing entirely on a lack of credit. A few days later, the league's executive committee put out a milder statement endorsing the FHLBB's "general objectives." What happened meanwhile to temper the league's criticsm?
According to William B. O'Connel., the league's chief spokesman, the initial reaction was triggered by the FHLBB's press release. When the league's executives saw a videotape of FHLBB chairman Robert H. McKinney's remarks, they were reassured that McKinney did not eexpect S&Ls to "make bad loans in inner cities." McKinney told an interviewer in San Francisco that the regulations were designed to make the industry "take a fresh look" at its credit practices and document fairness by complying with written standards. Judging from the comments already received by the FHLBB, financial officers seem more anxious about the paperwork than the concepts involved.
On the ohter hand, the National Savings and Loan League, a small lobbying group here, maintained a critical tone. It commented, "The proposed regulations appear to impose complex requirements on all associations in response to a problem (redlining), the scope of which has not yet been accurately measured."
From New York, National Urban League vice president Ronald H. Brown described his reaction as "positive - pleased there can be no denial" of loans for reasons of race, age or neighborhood. However, he expressed concern that enforcement might not be effective because it is to be carried out solely by the FHLBB with no external oversight. Brown said his organization would like to see numerical goals, or some internal mechanism that would trigger intevention by the board when not enough inner city loans were made.
Gale Cincotta, who heads National People's Action, a Chicago group that has been lobbying for anti-redlining laws for years, praised the regulations, but also expressed concern about enforcement. She would like to see regulation that would require an S&L to offer the same loan terms in the suburbs as in the central city.
She said such regulation was necessary to change the attitudes of people like one Chicago banker who declared after the FHLBB announcement, "You don't need (underwriting) standards: you can 'smell' a bad neighborhood driving through. Besides, anyone who would want to live in one of those neighborhoods doesn't need a banker, he needs a psychiatrist."
Jeff Zinsmeyer, an economist for Center for Community Change, a Washington organization that provides technical assistance to low- and moderate-income groups, called the regulations "far too vague." While he lauded the idea of putting loan underwriting standards on paper, he feared these would not be made available to the public in complete and easily understandable form. "Borrowers, not the board, should see to it that the standards are not discriminatory," he said.
He would require lenders to offer many types of mortgages so that if a borrower could not qualify for a conventional loan, he could get a wrap-around, cooperative, balloon or some other loan. Zinsmeyer also cited what he called "exploitation" of the word "neighborhood." Due to the vagueness of the concept, which encompass any territory the reluctant lender wishes (to shwo the area is going down), he advocates substitution or the word "block".
Though the regulations prohibit decisions based upon the neighborhood in which the dwelling is based, they leave an out: "Loan decisions should be based upon the value of the individual structure offered as security unless specific neighborhood factors affecting its present short-range future value (such as current market trends based on actual transactions involving comparable property, or housing abandonment in the immediate vicinity) are clearly established and documented."
Elsewhere they state that age of the dwelling cannot be the basis for a loan denial, but then add: "Other physical characteristics of the dwelling, such as its remaining economic life, and exposure to environmental hazards are proper underwriting considerations."