Testing

Selected for on-site, matched pair testing were mortgage lending institutions that had minority/white rejection ratios over 2.0 and/or significant differences between total market shares and minority market shares. Other institutions were selected on a random basis.

The ICRC conducted on-site, matched pair testing in each of the eight communities. Three teams of testers were used: African American/white, Asian American/white, and Latino/white. Testers were matched according to age, sex, height, and weight. Profiles created for each tester included: current employer, position, salary, length of employment, previous employer, current address, reasons for moving, down payment amount, new home cost, type of loan sought, debt amount, and familial status.

The profile for minority testers was structured to be slightly better than the white tester's profile (i.e. higher salary, longer employment, larger down payment, and less debt). Making the minority tester's profile slightly better overall than the white tester's profile ensured that both testers would be seen as at least equally qualified.

Testers were trained to act in a neutral, business-like manner. Testers were instructed to enter the lending institution and ask uniform questions about mortgage loans and rates. Testers were instructed not to volunteer information from their profiles unless asked.

A testing coordinator traveled with the testing teams to each of the communities. The coordinator planned the tests and supervised the testers. The coordinator conducted a pre-test interview before each test establishing where the tester was going and what the tester would do upon arrival. A post-test interview of each tester was conducted immediately after the visit to the lending institution. Testers were asked a uniform set of questions about their visit. The treatment of the two testers was compared and differences noted.

A testing advisory team consisting of the ICRC Executive Director, Assistant Attorney General, ICRC Supervisor of Housing Investigations, and three testing coordinators reviewed the results of the tests and made the decision as to whether different treatment may have occurred and whether follow-up tests were needed.

In the initial round of testing, each of the three teams completed at least four tests in each of the eight communities. A follow-up round of testing was conducted on the institutions that showed possible different treatment in the first round. A total of 122 tests (58 African American/white, 32 Asian American/white, and 32 Latino/white) were completed, from August 1996 through February 1997.

In 33 or 27% of the tests, the ICRC found possible different treatment based on race or national origin. Of those 33 tests indicating possible different treatment, the white testers were treated better than the minority testers 82% of the time. Minority testers were treated better 18% of the time.

There were various forms of different treatment noted. The most common difference was failure to give the same printed materials, such as loan applications, brochures, and business cards. Other differences included: quoting higher loan rates and fees, offering more information and counseling, and making referrals to particular loan officers.

During the 122 on-site fair lending tests, ICRC testers had 384 contacts with lender employees. In 232 of those contacts, the contacted employees were identified as tellers, receptionists, or customer service representatives. In 152, the contacted employees were identified as officers, managers, loan officers, loan originators, financial counselors, consumer loan officers, account executives, home finance specialists, vice-presidents, and presidents. In only one of those 384 contacts, did the employee appear to be African American, Asian American, or Latino. In none of the 152 contacts with employees in the higher positions, did the employee appear to be a member of a minority group.

Self-Testing. On September 30, 1996, President Clinton signed into law amendments to the "Equal Credit Opportunity Act (ECOA) and the "Fair Housing Act" (FHA) as part of the "Economic Growth and Regulatory Paperwork Reduction Act of 1996" (Pub. L. 104-208, 110 Stat. 3009) (1996 Act). The amendments to ECOA and FHA were to be effective April 1, 1997. Section 2302 of the 1996 Act creates a special legal privilege for information collected by creditors through "self-tests," so long as appropriate corrective action is taken to address any possible violations that may have been discovered through self-testing.

Creditors had been concerned that if they engage in self-testing their test results would be available to the public and they would be held liable for any violations before they had an opportunity to correct. Under the new law, results of self-tests may not be obtained by a government agency or credit applicant for use in an examination or investigation regarding fair lending compliance or in any civil proceeding in which a violation of ECOA or FHA is alleged.

ICRC Workshop. The ICRC now offers a free workshop on self-testing for creditors. The workshop explains the new self-testing law and teaches, through videos and demonstrations, how to design and conduct reliable and effective self-tests.

Insurance Tests. The ICRC also conducted six on-site homeowners' insurance tests in the Des Moines area, on March 20, 21, and 24, 1997. Two testers, one African American and one white, visited the same insurance agents and inquired about obtaining homeowners' insurance coverage. The testers' houses were nearly identical and located in the same census tract. The only difference presented to the insurance agent was the race of the testers. None of the tests indicated possible different treatment.

TESTS

Totals:

127

27

6

Community

Lenders

Cedar Rapids

Perpetual Savings Bank
Brenton Mortgage
Collins Credit Union
Guaranty Bank & Trust Co.
Norwest Bank
United Security Savings Bank
Brenton Bank
Hearthstone Mortgage
Firstar Bank
Firstar Home Mortgage
First Trust Bank
Mercantile Bank
Midland Financial Mortgages

Council Bluffs

Telco Credit Union
First Bank
Firstar Bank
Firstar Home Mortgage
Norwest Financial
First Federal Lincoln
Mercantile Bank

Davenport

Firstar Bank
Mercantile Bank
Norwest Bank
Midland Quad- City Mortgage
Northwest Bank & Trust
Citizens Federal Savings Bank
Brenton Bank
First Midwest
Norwest Mortgage

Des Moines

James Mortgage Company
West Des Moines State Bank
Brenton Bank
Firstar Bank
Boatmen's Bank
Mercantile Bank
AmerUs Mortgage
Firstar Home Mortgage Corporation
Norwest Mortgage
State Federal Savings and Loan
First Bank

Dubuque

Firstar Bank
Dupaco Community Credit Union
Du Trac Community Credit Union
Dubuque Bank & Trust
Mercantile Bank
American Trust
Norwest Mortgage

 

Iowa City

Hawkeye Bank
Hills Bank
First National Bank
Iowa State Bank
University of Iowa Credit Union
Perpetual Savings Bank

Sioux City

Firstar Bank
Norwest Mortgage
First Federal Savings Bank
Pioneer Bank
Boatmen's Bank
Norwest Bank
Security National Bank
Telco Triad Credit Union
First Bank

Waterloo/Cedar Falls

Homeland Bank
Norwest Bank
Firstar Bank
Mercantile Bank
AmerUs Bank
First Security State Bank
GMAC Mortgage
Legacy Mortgage