Large Bank Mergers: Fair Lending Review Could be Enhanced With Better
Coordination (Letter Report, 11/03/1999, GAO/GGD-00-16).

Pursuant to a congressional request, GAO reviewed large bank holding
company mergers and regulatory enforcement of the Fair Housing Act and
the Equal Credit Opportunity Act, focusing on the: (1) fair lending
issues raid by consumer and community groups during the application
process for six large bank holding company mergers; and (2) Federal
Reserve Board's (FRB) consideration of those issues.

GAO noted that: (1) in each of the six mergers, consumer and community
groups raised the issue of perceived high loan denial and low lending
rates to minorities by banks, bank subsidiaries, and nonbank mortgage
subsidiaries involved in the mergers; (2) in four merger cases,
community and consumer groups were concerned about alleged potential
discriminatory practices of the holding companies' nonbank mortgage
subsidiaries; (3) nonbank mortgage subsidiaries are not subject to
routine examinations by federal regulators for compliance with fair
lending and other consumer protection laws and regulations; (4) the fair
lending laws generally confer enforcement, authority for nonbanking
companies with the Federal Trade Commission, Department of Housing and
Urban Development, or Department of Justice and do not specifically
authorize any federal agency to conduct examinations of nonbanking
companies for compliance with these laws; (5) the consumer and community
groups were concerned that: (a) sub-prime lending activities of the
nonbank mortgage subsidiaries had resulted or could result in minorities
being charged disproportionately higher rates and fees; and (b) minority
loan applicants were being "steered" between the affiliated banking or
nonbank subsidiaries of the holding company to the lender that charged
the highest rates or offered the least amount of services; (6) other
fair lending issues included alleged discriminatory prescreening and
marketing, low lending rates to minority-owned small businesses,
discriminatory treatment of applicants, and redlining; (7) FRB
considered these fair lending issues in the six merger cases by
analyzing information from various sources, including the bank holding
companies involved in the mergers and other federal and state agencies;
(8) FRB staff analyzed Home Mortgage Disclosure Act data provided
annually by the banks and nonbank mortgage subsidiaries involved in the
mergers; (9) FRB staff stated that they placed heavy emphasis on prior
and on-going compliance examinations performed by the appropriate
primary banking regulators for the banks involved in the merger; (10)
examinations for nonbank mortgage subsidiaries were generally not
available because these entities are not routinely examined by any
federal agency; (11) in two of the six mergers in GAO's review, FRB has
previously performed compliance investigations of nonbank mortgage
subsidiaries involved in the mergers; and (12) according to FRB staff,
FRB had used its general examination and supervisory authority for bank
holding companies to conduct these particular investigations.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-00-16
     TITLE:  Large Bank Mergers: Fair Lending Review Could be Enhanced
	     With Better Coordination
      DATE:  11/03/1999
   SUBJECT:  Mortgage loans
	     Racial discrimination
	     Bank holding companies
	     Banking regulation
	     Bank examination
	     Lending institutions
	     Reporting requirements
	     Law enforcement
	     Corporate mergers

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United States General Accounting Office
GAO

Report to the Honorable Maxine Waters and the

Honorable Bernard Sanders

House of Representatives

November 1999

GAO/GGD-00-16

LARGE BANK MERGERS
Fair Lending Review Could be Enhanced With

Better Coordination

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Contents
Page 281GAO/GGD-00-16 Large Bank Mergers and Fair Lending
Letter                                                                      1
                                                                             
Appendix I                                                                 32
Status of Actions on
Recommendations Made in
Our 1996 Report
                                                                             
Appendix II                                                                33
Emerging Fair Lending
Issues Not Raised in the
Six Mergers
                           Credit-Scoring Issues                           33
                           Automated Loan Underwriting Issues              34
                           Mortgage Broker Issues                          35
                                                                             
Appendix III                                                               38
Data on Loans Originated
by Institution Type From
1995 Through 1997
                                                                             
Appendix IV                                                                44
Comments From the
Federal Reserve Board
                                                                             
Appendix V                                                                 48
Comments From the Office
of the Comptroller of
the Currency
                                                                             
Appendix VI                                                                49
Comments From the
Department of Housing
and Urban Development
Appendix VII                                                               51
GAO Contacts and Staff
Acknowledgments
                                                                             
Tables                     Table 1:  Fair Lending Issues Raised             9
                           in Six Selected Merger Cases
                                                                             
Figures                    Figure 1:  Fair Lending Enforcement              5
                           Responsibility for Components of a
                           Hypothetical Bank Holding Company
                           Figure III.1:  Loans Originated by              39
                           Financial Sector From 1995 to 1997
                           Figure III.2:  Proportion of the                40
                           Number of Loans Originated by Bank
                           Sector Component From 1995 to 1997
                           Figure III.3:  Proportion of the                41
                           Dollars of Loans Originated by Bank
                           Sector Component From 1995 to 1997
                           Figure III.4:  Percent Change in the            42
                           Number of Loan Originations for Each
                           Bank Sector Component From 1995 to
                           1997
                           Figure III.5:  Percent Change in the            43
                           Dollar Value of Loan Originations for
                           Each Bank Sector Component From 1995
                           to 1997
                                                                             

Abbreviations

CRA       Community Reinvestment Act
DOJ       Department of Justice
ECOA      Equal Credit Opportunity Act
FDIC      Federal Deposit Insurance Corporation
FHA       Fair Housing Act
FRB       Federal Reserve Board
FTC       Federal Trade Commission
HMDA      Home Mortgage Disclosure Act
HUD       Department of Housing and Urban
Development
NCUA      National Credit Union Administration
OCC       Office of the Comptroller of the
Currency
OTS       Office of Thrift Supervision
FRS       Federal Reserve System

B-280045

Page 8GAO/GGD-00-16 Large Bank Mergers and Fair Le
nding
     B-280045

     November 3, 1999

The Honorable Maxine Waters
United States House of Representatives
 
Honorable Bernard Sanders
United States House of Representatives
 
As you requested, this report discusses large bank
holding company mergers and regulatory enforcement
of the Fair Housing Act (FHAct) and the Equal
Credit Opportunity Act (ECOA), known collectively
as the fair lending laws.1 The fair lending laws
prohibit discrimination in lending based on an
applicant's race, color, religion, gender,
national origin, or certain other protected
characteristics. During the past few years,
mergers between several of the largest U.S.
banking institutions have prompted consumer and
community groups to raise a number of fair lending
concerns.

The objectives of this report are to (1) describe
the fair lending issues raised by consumer and
community groups during the application process
for six large bank holding company mergers2 and
(2) assess the Federal Reserve Board's (FRB)
consideration of those issues.3 Appendix I
provides information that you requested regarding
actions that regulators have taken in response to
recommendations made in our 1996 report on fair
lending.4 Appendix II contains information about
emerging fair lending issues related to credit
scoring, automated loan underwriting, and mortgage
brokers.

Results in Brief
In each of the six mergers, consumer and community
groups raised the issue of perceived high loan
denial and low lending rates to minorities by
banks, bank subsidiaries, and nonbank mortgage
subsidiaries involved in the mergers. In four
merger cases, community and consumer groups were
concerned about alleged potential discriminatory
practices of the holding companies' nonbank
mortgage subsidiaries. Unlike bank subsidiaries,
nonbank mortgage subsidiaries are not subject to
routine examinations by federal regulators for
compliance with fair lending and other consumer
protection laws and regulations. The fair lending
laws generally confer enforcement authority for
nonbanking companies with the Federal Trade
Commission (FTC), Department of Housing and Urban
Development (HUD), or Department of Justice (DOJ)
and do not specifically authorize any federal
agency to conduct examinations of nonbanking
companies for compliance with these laws. The
consumer and community groups were concerned that
(1) sub-prime5 lending activities of the nonbank
mortgage subsidiaries had resulted or could result
in minorities being charged disproportionately
higher rates and fees, and (2) minority loan
applicants were being "steered" between the
affiliated banking or nonbank subsidiaries of the
holding company to the lender that charged the
highest rates or offered the least amount of
services. Other fair lending issues, which
involved the banks, included alleged
discriminatory prescreening and marketing6 (four
mergers), low lending rates to minority-owned
small businesses (two mergers), discriminatory
treatment of applicants (two mergers), and
redlining7 (one merger).

FRB considered these fair lending issues in the
six merger cases by collecting, reviewing, and
analyzing information from various sources,
including the bank holding companies involved in
the mergers and other federal and state agencies.
Specifically, FRB staff analyzed Home Mortgage
Disclosure Act (HMDA) data provided annually by
the banks and nonbank mortgage subsidiaries
involved in the mergers. In addition, FRB staff
stated that they placed heavy emphasis on prior
and on-going compliance examinations performed by
the appropriate primary banking regulators for the
banks involved in the merger. However,
examinations for nonbank mortgage subsidiaries
were generally not available because these
entities are not routinely examined by any federal
agency. In two of the six mergers in our review,
FRB had previously performed compliance
investigations of nonbank mortgage subsidiaries
involved in the mergers. According to FRB staff,
FRB had used its general examination and
supervisory authority for bank holding companies
to conduct these particular investigations.

FRB did not routinely contact FTC or HUD
concerning the six mergers despite their fair
lending enforcement responsibilities.
Specifically, FTC has primary law enforcement
responsibilities under ECOA for the nonbank
mortgage subsidiaries of bank holding companies,
and HUD is responsible for the enforcement of the
Fair Housing Act for all institutions. In
addition, FRB shared some, but not all, of the
fair lending-related comment letters it received
during the application process with the
appropriate primary banking regulators, FTC, and
HUD. Allegations of fair lending problems
expressed in the letters could be useful to these
other agencies in their ongoing enforcement
activities. Finally, FRB did not provide or direct
the public or enforcement agencies to sources for
structural information about the bank holding
companies involved in the mergers. This could have
limited the information these sources provided to
FRB. This letter contains recommendations that
address these concerns.

Background
Although not specifically required to do so by
statute, FRB considers the fair lending compliance
of the entities under the holding companies
involved in the merger and any substantive public
comments about such compliance. FRB must act on a
merger request within 90 days of receiving a
complete application or the transaction will be
deemed to have been approved. FRB also seeks
comments from appropriate state and federal
banking regulatory agencies, which have 30 days to
respond. While the application is pending, public
comment on the proposed merger is to be solicited
through notices in newspapers and the Federal
Register. The public is allowed 30 days to provide
written comments. FRB is required to consider
several factors when reviewing a merger
application, including (1) the financial condition
and managerial resources of the applicant, (2) the
competitive effects of the merger, and (3) the
convenience and needs of the community to be
served.

Fair lending oversight and enforcement
responsibilities for entities within a bank
holding company vary according to entity type (see
fig. 1). Federal banking regulators are
responsible for performing regularly scheduled
examinations of insured depository institutions
and their subsidiaries to assess compliance with
fair lending laws.8 In contrast, nonbank
subsidiaries of bank holding companies are not
subject to regularly scheduled compliance
examinations by any agency. However, the fair
lending laws provide primary enforcement authority
over nonbank mortgage subsidiaries to HUD and FTC.
HUD has enforcement authority with respect to
FHAct violations for all institutions, and FTC has
ECOA enforcement responsibility with respect to
all lenders that are not under the supervision of
another federal agency. For example, FTC is
responsible for the enforcement of ECOA with
respect to nonbank mortgage subsidiaries of bank
holding companies. FRB has general legal authority
under the Bank Holding Company Act and other
statutes to examine nonbank mortgage subsidiaries
of bank holding companies. Appendix III contains
information regarding the extent of mortgage
lending performed by banks, thrifts, and
independent mortgage companies, another major
component of the mortgage lending market, which
are not addressed in this study. It also provides
data specific to the banking sector.

Figure 1:  Fair Lending Enforcement Responsibility
for Components of a Hypothetical Bank Holding
Company

Note 1: The primary federal agency for fair
lending enforcement is shown in the parentheses.
With respect to nonbank mortgage subsidiaries,
FTC's authority is limited to enforcement of ECOA.
Note 2: HUD has primary enforcement responsibility
for FHAct compliance of all institutions,
including all components of a bank holding
company.
Source: GAO.

Federal banking regulatory agencies are authorized
under ECOA to use their full range of enforcement
authority to address discriminatory lending
practices by financial institutions under their
jurisdictions. This includes the authority to seek
prospective and retrospective relief and to impose
civil money penalties. HUD, on the other hand, has
enforcement authority with respect to FHAct
violations for all institutions and HMDA
compliance responsibilities for independent
mortgage companies. Both ECOA and FHAct provide
for civil suits by DOJ and private parties.
Whenever the banking regulatory agencies or HUD
have reason to believe that an institution has
engaged in a "pattern or practice" of illegal
discrimination, they must refer these cases to DOJ
for possible civil action. Such cases include
repeated, regular, or institutionalized
discriminatory practices. Other types of cases
also may be referred to DOJ.

From 1996 through 1998, DOJ entered into four
settlements and one consent decree involving fair
lending compliance. In the same period, FTC
entered into three consent decrees and issued one
complaint that were based at least in part on ECOA
compliance issues. FRB and OCC, respectively, took
two and nine enforcement actions against regulated
institutions for violations of the fair lending
laws and regulations in this same time period.
During this time period FRB, OCC, and FTC also
conducted various investigations of consumer
complaints they received regarding alleged fair
lending violations by institutions under their
jurisdiction. For example, FRB conducted 32
investigations of consumer complaints it received
in 1998 that alleged fair lending violations by
state member banks.

HUD can investigate fair lending complaints
against various types of institutions, including
bank holding companies, national banks, finance
companies, mortgage companies, thrifts, real
estate companies, and others. In processing fair
lending complaints, HUD is to conduct an
investigation and, if evidence suggests a
violation of the law, issue a charge. HUD is
required by law to attempt to conciliate such
cases. From 1996 through 1998, HUD entered into
296 conciliation agreements. Of the 296, at least
108 involved banks, mortgage companies, or other
entities related to bank holding companies. If
conciliation is not achieved, HUD may pursue the
case before an Administrative Law Judge. However,
a complainant, respondent, or aggrieved person may
elect to have the claims asserted in a federal
district court instead of a hearing by an
Administrative Law Judge. The Secretary of HUD may
review any order issued by the Administrative Law
Judge. Decisions of the Administrative Law Judge
may be appealed to the federal court of appeals.

Regulatory enforcement of ECOA and FHAct, enacted
in 1974 and 1968, respectively, is supported by
the HMDA. As amended in 1989, HMDA requires
lenders to collect and report data annually on the
race, gender, and income characteristics of
mortgage applicants and borrowers. Lenders who
meet minimum reporting requirements submit HMDA
data to their primary banking regulator or HUD in
the case of independent mortgage companies.9 HMDA
data are then processed and made available to the
public through the reporting lenders, the Federal
Financial Institutions Examination Council, 10 and
other sources. Such information is intended to be
useful for identifying possible discriminatory
lending patterns.

As we noted in our 1996 report on fair lending,
federal agencies with fair lending enforcement
responsibilities face a difficult and time-
consuming task in the detection of lending
discrimination.11 Statistical analysis of loan data
used by some federal agencies can aid in the
search for possible discriminatory lending
patterns or practices, but these methods have
various limitations. For example, these
statistical models cannot be used to detect
illegal prescreening or other forms of
discrimination that occur prior to the submission
of an application. For these forms of
discrimination, consumer complaints may be the
best indicator of potential problems. We noted in
the report that it is critical that the agencies
continue to research and develop better detection
methodologies in order to increase the likelihood
of detecting illegal practices. In addition, we
encouraged the agencies' efforts to broaden their
knowledge and understanding of the credit search
and lending processes in general because such
knowledge is prerequisite to improving detection
and prevention of discriminatory lending
practices.

Scope and Methodology
To describe the fair lending issues raised by
consumer and community groups during the
application process for large bank holding company
mergers, we looked at FRB's internal summaries of
comments made by consumer and community groups for
six selected large bank holding company mergers
that occurred from 1995 to 1998. For each of those
years, we selected the mergers with the largest
asset values for the acquired bank holding
company. The six large bank holding company
mergers that we reviewed were

ï¿½    NBD's acquisition of First Chicago in 1995,
ï¿½    Fleet's acquisition of Shawmut in 1995,
ï¿½    Chemical's acquisition of Chase in 1996,
ï¿½    NationsBank's acquisition of Boatmen's in
1997,
ï¿½    NationsBank's acquisition of BankAmerica in
1998, and
ï¿½    BancOne's acquisition of First Chicago NBD in
1998.

 To verify the completeness of FRB's summaries of
the comment letters, we developed a data
collection instrument, reviewed a sample of
comment letters submitted for two of the mergers,
and compared our data with the FRB summaries. From
our sampling of comment letters, we determined
that FRB's internal summaries of the comment
letters were accurate and that we could rely upon
the other FRB summaries as accurate reflections of
the public comments submitted.

To assess FRB's consideration of the types of fair
lending issues raised during the merger process
for large bank holding companies, we reviewed
FRB's internal memorandums and supporting
documentation for the six selected mergers and
FRB's orders approving the mergers in question. We
also interviewed FRB staff involved in assessing
the comments made by consumer and community groups
for the six selected mergers. In addition, we
obtained and analyzed fair lending enforcement
actions taken by FRB, OCC, DOJ, FTC, and HUD to
determine if they involved institutions that were
part of the six selected mergers. We also
conducted interviews with representatives of these
agencies to discuss coordination policies and
procedures related to the merger process for these
large bank holding companies.

We held discussions with representatives of the
four bank holding companies that resulted from the
six mergers, representatives of bank industry
trade groups, and various consumer and community
groups that commented on the six mergers to obtain
their views regarding the federal regulatory
response to fair lending issues raised during the
merger process. We conducted our review from
November 1998 to July 1999, in accordance with
generally accepted government auditing standards.

We requested comments on a draft of this report
from FRB, OCC, FTC, DOJ, and HUD. FRB, OCC, and
HUD provided written comments that are included in
appendixes IV through VI. A summary of the
agencies' comments and our responses are presented
at the end of this letter.

Fair Lending Concerns Were Raised in Each Merger
Consumer and community groups submitted comment
letters raising fair lending issues in each of the
six mergers. The number of comment letters that
FRB received on the mergers-which included letters
supporting or opposing the merger-ranged from 17
to approximately 1,650. Table 1 lists the primary
fair lending issues raised and the number of
mergers in which each issue was raised.

Table 1:  Fair Lending Issues Raised in Six
Selected Merger Cases
Fair lending issue               Number of mergers
Denial of credit/low                             6
lending to minorities
Abusive sub-prime lending                        5
Discriminatory                                   4
prescreening/marketing
Steering                                         3
Low lending to minority-                         2
owned small businesses
Discriminatory treatment                         2
of applicants
Redlining                                        1
Source: GAO analysis of FRB data.

Issue of High Denial and Low Lending Rates for
Minorities Was Raised in All Six Mergers
As shown in table 1, consumer and community groups
raised the issue of perceived high denial and low
lending rates to minorities in all six cases. The
groups typically based these concerns on their
analysis of HMDA data. For example, one of the
community groups commenting on a proposed merger
cited denial rates for minorities that were twice
the rate for Whites in a particular geographic
area. In other cases, consumer and community
groups cited HMDA data indicating that the number
of loans made to minority groups by the
institutions involved in the merger was not
consistent with the demographics of a particular
market. The groups claimed that the HMDA data
provided evidence of a disparate impact in lending
to minorities.12

The consumer and community groups were most often
concerned about the lending record of the
subsidiaries of the holding company that was the
acquirer. However, a number of these groups raised
issues with the lending records of both holding
companies involved in the proposed merger. In a
few cases, the lending record of the subsidiaries
of the holding company that was to be acquired was
identified as an issue. The consumer and community
groups often did not identify the specific
institution under the holding company in question
but, instead, focused on the overall lending in
specific geographic markets.

Nonbank Mortgage Subsidiary Concerns Were Raised
On Five Mergers
     Consumer and community groups raised fair
lending concerns in five of the six mergers
regarding the activities of nonbank mortgage
subsidiaries. In four of the mergers, the concerns
involved the nonbank mortgage subsidiaries of the
holding companies. Nonbank mortgage subsidiaries
of holding companies accounted for approximately
one-fifth of the total mortgage lending of the
bank sector, and they experienced steady growth in
both the number and dollar value of mortgage loans
originated from 1995 through 1997. Their growth in
lending activity out-paced other bank sector
entities in 1997. (See app. III, figs. III.2 to
III.5.) The nonbank mortgage company in the fifth
merger was a subsidiary of one of the lead banks
involved in the merger.

Groups Were Concerned About Abusive Sub-Prime
Lending Practices
In five merger cases, consumer and community
groups cited abusive or what they characterized as
"predatory" sub-prime lending as a fair lending
issue. Sub-prime lending itself is not illegal and
is generally acknowledged as a means of widening
consumer access to credit markets. However, as
stated in a recent interagency document, the
"higher fees and interest rates [associated with
sub-prime lending] combined with compensation
incentives can foster predatory pricing or
discriminatory steering of borrowers to sub-prime
products for reasons other than the borrower's
underlying creditworthiness."13

 The alleged abusive sub-prime lending activities
cited by the consumer and community groups
included such practices as undisclosed fees and
aggressive collection practices that were more
likely to affect the elderly, minorities, and low-
to moderate-income individuals. Other concerns
identified with sub-prime lending included the
alleged targeting of minorities for the higher
priced sub-prime loans even if they would qualify
for loans at lower rates. The groups typically
relied on anecdotal rather than statistical
evidence to support their concerns. HMDA data
cannot be used to analyze sub-prime lending
because HMDA does not require lenders to identify
which loans are sub-prime or report loan
characteristics that can be used to identify sub-
prime lending, such as the pricing and fees, and
does not require the reporting of borrowers'
credit information.

Concerns About Steering Raised in Three Mergers
In three of the merger cases, consumer and
community groups alleged that minorities were
being directed or steered disproportionately to
the holding company lender that offered the
highest-priced loans or the least amount of
service. In two of the mergers, the allegations
focused on steering between the banks and the
holding companies' nonbank mortgage companies
engaged in sub-prime lending. The steering issue
raised in the third merger involved referral
practices between a bank and its subsidiaries that
allegedly resulted in minorities typically
receiving a lower level of service.

One of the consumer and community groups alleged
that a holding company established the nonbank
mortgage company as a bank holding company
subsidiary rather than as a bank subsidiary to
escape regulatory scrutiny. As noted earlier,
nonbank subsidiaries of bank holding companies are
not subject to regularly scheduled compliance
examinations. The group stated that this created a
"regulatory blindspot."

Other Fair Lending Issues Were Raised on Some of
the Mergers
Consumer and community groups raised prescreening
and marketing issues in four mergers. In two of
the four, the consumer and community groups were
concerned about prescreening of applicants that
resulted in the referral of only those applicants
deemed qualified. The groups alleged that the
prescreening programs violated the ECOA provision
that requires lenders to provide applicants with
written notification of a loan application denial
stating the reason or basis for the denial. The
community groups also raised issues with bank fee
or marketing practices. According to these groups,
some practices were intended to discourage
minorities from applying for credit, and other
practices disproportionately targeted minorities
for loans with higher interest rates.

In two of the merger cases, consumer and community
groups raised issues related to lending to small
businesses owned by minorities or located in
minority communities. The primary support for
these issues appeared to be analysis of HMDA data
and Community Reinvestment Act (CRA) data.14 The
consumer and community groups alleged that the
holding companies involved in the two mergers were
discriminating against or providing an inadequate
level of funding to minority-owned small
businesses or small businesses located in minority
communities.

Concerns about the discriminatory treatment of
minority applicants were raised in two of the
mergers. The basis for the complaint on one merger
was the results of an independent testing program
that used matched-pair testing.15 According to the
complainant, Black applicants were kept waiting
longer, were quoted higher closing costs and
overall processing times, and overall were
discouraged from applying for credit in comparison
to White applicants. In another merger, FRB
received several comment letters that objected to
the acquiring bank holding company's customer call
center's handling of fair lending complaints.
Specifically, they asserted that the center's
staff did not inform callers of their right to
file a complaint and lacked expertise in fair
lending and investigative techniques.

Redlining of predominantly minority neighborhoods
was alleged in one merger. A consumer/community
group said that the acquiring bank holding company
had redlined many of the low- and moderate-income,
predominantly minority communities in a particular
city. The group based its allegation on the lack
of bank branches and minimal marketing of credit
products in those communities.

FRB Analyzed HMDA Data and Relied Heavily on Prior
Exams to Assess Fair Lending Concerns
FRB analyzed HMDA data to help assess the validity
of the fair lending concerns raised by the groups.
FRB also obtained and reviewed additional
information from the bank holding companies
involved in the proposed merger. FRB staff stated
that in assessing fair lending concerns, they
relied primarily on current and past fair lending
compliance examinations performed by the primary
banking regulator(s).

In each of the six mergers, FRB staff obtained and
reviewed additional information provided by the
bank holding companies to assess the fair lending
issues raised by consumer and community groups.
According to FRB officials, they forwarded the
comments received from the consumer and community
groups during the public comment period to the
bank holding companies involved in the mergers.
They explained that the bank holding companies
were encouraged, but not required, to provide
information or a response to the issues raised in
the comment letters. In addition, FRB sometimes
requested specific information from the bank
holding companies in response to issues raised by
the consumer and community groups. For example,
FRB staff requested and assessed information from
one holding company about the settlement of
lawsuits involving consumer complaints. This
request was made in response to a group's concerns
about the compliance of a nonbank mortgage
subsidiary with fair lending and consumer
protection laws.

FRB Performed HMDA Analyses in All Six Mergers
In response to consumer and community groups'
concerns about overall lending to minorities by
the entities involved in the proposed holding
company mergers, FRB staff obtained and analyzed
HMDA data. Using these data, FRB compared the
lending performance of the bank holding company
subsidiary in question to the performance of other
lenders in the aggregate for a particular
community or geographic area. In addition, they
looked at the holding company's record of lending
to minorities over the last several years to
determine if there were any discernible patterns
that could indicate discriminatory lending.

In conducting their analysis, FRB staff identified
lending rate disparities in some areas/markets
that indicated that the holding company subsidiary
was lagging behind the aggregate or not doing as
well as could be expected. However, FRB staff
noted that although HMDA data may indicate a need
for further analysis or targeted reviews through
examinations, HMDA data alone cannot provide
conclusive evidence of illegal discrimination
because of known limitations in the HMDA data.

Bank regulators, bank officials we contacted, and
some academics and community group representatives
agreed that HMDA data are limited in their
potential to demonstrate discrimination. Principal
among the limitations associated with HMDA data is
the lack of information on important variables
used in the credit underwriting process. For
example, HMDA data do not include information on
the creditworthiness of the applicant, the
appraised value of the home, or the credit terms
of the loan. This information typically is
maintained only in the lender's loan files and is
accessible to regulators conducting compliance
examinations or investigations.

FRB Relied Heavily on Results of Bank Regulators'
Compliance Examinations
FRB staff stated that they relied heavily on the
primary regulator's compliance examinations
because on-site comprehensive reviews of actual
bank practices and records are the best means to
assess compliance with the fair lending laws.
Moreover, time, access, and authority constraints
limit the analysis of fair lending issues that FRB
staff can perform during the application process
for bank holding company mergers. FRB officials
stated that the merger application review process
is not a substitute for the fair lending
examination process. Therefore, FRB relied on the
past and current fair lending examination results
of the primary banking regulator.

In response to the fair lending concerns raised by
the consumer and community groups, FRB staff said
they obtained information on the scope of and
conclusions reached on prior and on-going fair
lending compliance examinations performed by the
primary banking regulator. The age of the
examinations relied on by FRB ranged from over 3
years old to having been recently completed or
still on-going. These examinations covered the
fair lending compliance of the banks and their
subsidiaries with the fair lending laws and
regulations. The fair lending examination reports
typically did not address all of the fair lending
issues raised by the consumer and community groups
during the merger process, such as abusive sub-
prime lending, discriminatory
prescreening/marketing, and steering.16

Moreover, nonbank mortgage subsidiaries of bank
holding companies are not routinely examined for
fair lending compliance by any federal regulatory
or enforcement agency. On a case-by-case basis,
FRB officials told us they have exercised their
general authority granted under the Bank Holding
Company Act and other statutes to conduct fair
lending compliance investigations of a bank
holding company's nonbank mortgage subsidiaries.
In two cases, FRB had conducted prior
investigations of nonbank mortgage subsidiaries
involved in proposed mergers we studied.

According to FRB officials, a long-standing FRB
policy of not routinely conducting consumer
compliance examinations of nonbank subsidiaries
was formally adopted in January 1998. The policy
is based on three primary considerations. First,
ECOA and other major laws enforced under FRB's
compliance program give primary enforcement
responsibility for nonbank subsidiaries of bank
holding companies to FTC. Second, routine
examinations of the nonbank subsidiaries would be
costly. Third, such examinations would, in the FRB
officials' opinion, raise questions about
"evenhandedness" given that similar entities, such
as independent mortgage companies, that are not
part of bank holding companies would not be
subjected to examinations. FRB does not have
specific criteria as to when it will conduct on-
site investigations of these nonbank mortgage
subsidiaries. According to FRB, on-site
inspections of a holding company nonbank mortgage
subsidiary are conducted when factors present
suggest that discriminatory practices are
occurring and when it seems appropriate to do so
because the matter may relate to relevant
managerial factors. In contrast, FRB's policy is
to conduct full, on-site examinations of the
subsidiaries of the banks it regulates. Banks
still account for a greater amount of lending than
the other bank sector entities-bank subsidiaries
and nonbank mortgage subsidiaries of holding
companies. However, the growth in lending by
nonbank mortgage subsidiaries has steadily
increased since 1995 and outpaced other bank
sector entities in 1997 (see app. III).

In discussions with FTC officials, we confirmed
that they do not examine or routinely investigate
nonbank mortgage subsidiaries of holding
companies. They emphasized that FTC is a law
enforcement agency, not a regulator. FTC, they
said, does not conduct compliance examinations but
does investigations targeted at specific entities,
most of which are agency-initiated. However,
investigations can result from consumer complaints
that indicate a pattern or practice or public
interest problem to be explored. The officials
noted that FTC's jurisdiction is broad-generally
covering any lending entity that is not a bank,
thrift, or their holding companies-but FTC
resources are limited. They said FTC's current
ECOA enforcement efforts have focused on
independent mortgage or finance companies and
discriminatory pricing issues. During the period
of the six mergers that we reviewed, 1996 through
1998, FTC achieved three settlements and issued
one complaint in ECOA enforcement actions; none
involved bank holding company entities.

In all six mergers, FRB noted that the primary
banking regulator had found no evidence of illegal
credit discrimination in its most recent fair
lending compliance examinations. Of the two prior
FRB investigations of nonbank mortgage
subsidiaries, FRB found no evidence of illegal
discrimination in one case. As discussed further
in the next section, FRB made a referral to DOJ on
the other case on the basis of the nonbank
mortgage subsidiary's use of discretionary loan
pricing practices that resulted in disparate
treatment based on race.

FRB Imposed Conditions on One Merger on the Basis
of Fair Lending Issues
FRB approved all six of the mergers, but one was
approved with a condition related to a fair
lending compliance issue. At the time of the
merger application in question, DOJ was pursuing
an investigation-on the basis of a FRB referral-of
the holding company's nonbank mortgage subsidiary.
The focus of the investigation was on the nonbank
mortgage subsidiary's use of discretionary loan
pricing-known as overaging-which allegedly
resulted in minorities disproportionately paying
higher loan prices than nonminorities. The nonbank
mortgage subsidiary was under a commitment with
FRB not to engage in overage practices. FRB
approved the merger with the condition that the
holding company not resume the overage practice
without FRB's approval. DOJ subsequently entered
into a settlement agreement with the nonbank
mortgage subsidiary in which it agreed to change
its overage policies and pay $4 million into a
settlement fund.17

FRB's Processes Had Weaknesses That Could Limit
Government Agencies' Access to Relevant
Information
In our review of the six merger cases, we found
weaknesses in some of FRB's practices that could
limit the access of various government agencies to
information about the fair lending compliance
performance of bank holding company entities. Two
weaknesses could limit FRB's access to such
information during consideration of bank holding
company merger applications. Specifically, FRB did
not routinely contact FTC or HUD to obtain
information about any fair lending complaints or
concerns related to the entities involved in the
mergers. Moreover, FRB did not ensure that
information about the structural organization of
the bank holding companies was available to the
public or DOJ, which could have limited the
information provided to FRB by these sources. A
third weakness could limit the access of other
agencies with fair lending compliance
responsibilities to information FRB obtained
during consideration of merger applications.
Specifically, FRB did not routinely provide the
primary banking regulators, FTC, and HUD with the
comment letters it received during the merger
applications process regarding the fair lending
compliance of the banks and nonbank mortgage
subsidiaries of the holding companies involved in
the six mergers.

FRB Did Not Routinely Seek Information From FTC or
HUD
As discussed previously, the enforcement of fair
lending laws is shared by a number of federal
agencies. For example, there are four agencies
(FRB, FTC, HUD, and DOJ) that have roles in fair
lending enforcement with regard to nonbank
mortgage subsidiaries of bank holding companies.
Federal agencies involved in fair lending
oversight and enforcement-including FRB, FTC, HUD,
and DOJ and other federal banking
regulators-recognize the need for effective
coordination in their Interagency Policy Statement
on Discrimination in Lending. This policy states
that they will seek to coordinate their actions to
ensure that each agency's action is consistent and
complementary.

In keeping with the spirit of this policy, FRB
routinely solicited input from the primary federal
regulator for the banking subsidiaries of the
holding companies involved in the merger.18 In
addition, FRB and DOJ staff told us that they
coordinated informally with each other during the
merger application process regarding the fair
lending compliance of the holding company
subsidiaries involved in the mergers. However, FRB
did not typically contact FTC or HUD to determine
if they had ongoing investigations involving any
of the bank holding company subsidiaries or other
data, including consumer complaints, that could be
useful in assessing the fair lending concerns
raised by consumer and community groups during the
merger process. In the five merger cases in which
fair lending concerns about the nonbank mortgage
subsidiaries were raised, FRB contacted FTC with
regard to only one of the merger applications; FRB
did not contact HUD in any of the cases. Without
coordination with FTC and HUD, FRB cannot ensure
that it has access to all relevant information
about fair lending issues that may arise in its
consideration of bank holding company merger
applications.

In three of the six merger cases, HUD had fair
lending complaint investigations in process at the
same time that FRB was considering the merger
applications. There was one merger in which HUD
had three ongoing investigations arising out of
consumer complaints (complaint investigations) at
the time of the merger application. For example,
one of the cases that HUD was investigating during
a merger involved alleged discrimination at the
preapplication interview, such as minority
applicants receiving less information about the
bank's mortgage products and being quoted less
favorable terms than similarly qualified White
applicants. All six of the complaint
investigations that were in process at the time of
the mergers were the result of complaints by
individuals. In five of the six cases, HUD entered
into conciliation agreements that involved
monetary payments to the complainants ranging from
$350 to $46,000.

Public and Enforcement Agencies Need Holding
Company Structure Information
In soliciting input on the proposed merger, FRB
did not provide or direct federal enforcement
agencies or the public to structural information
about bank holding companies that would identify
an affiliated bank and nonbank lenders involved in
the merger. As a result, federal enforcement
agencies and the public may not have been able to
provide all relevant information. For this reason,
FRB may not have had current and complete fair
lending information on bank holding companies to
properly assess the fair lending activities of
these companies during the merger application
process.

Ensuring knowledge of and access to structural
information on bank holding companies, including
the names and addresses of bank and nonbank
lenders under the applicant, could enable the
enforcement agencies to better complement FRB's
efforts to assess the fair lending activities of
bank holding company entities for the merger
application process. A HUD official we interviewed
stated that without information from FRB regarding
the structural organization of a bank holding
company, HUD may not be able to identify the
entities within the holding company structure that
were subject to ongoing or past complaint
investigations. Officials from DOJ and FTC also
indicated the need for such information.

Access to information about the structural
organization of the holding companies involved in
proposed mergers could also help improve the
quality of public comments that FRB receives
during the merger process. FRB staff stated that
the comments that they receive from consumer and
community groups often exhibit a lack of
understanding of the often complex structural
organization of the holding companies involved in
a proposed merger-particularly as it relates to
mortgage lending activity.

Outlines of the hierarchical structure of bank
holding companies have been available since
January 1997 through the FRB's National
Information Center (NIC) on the Internet. 19
However, not all the government agencies and
consumer and community groups may be aware of the
NIC source or have access to it. In addition, the
structural information provided by NIC could be
viewed as somewhat overwhelming and, in that
sense, difficult to use. As noted on the NIC Web
site itself, the information for large
institutions "can be quite lengthy and complex."
The structural information on the NIC Web site is
also limited in that geographical information is
provided for some, but not all, lenders within
holding companies. Although the site offers the
names and addresses of banking institutions'
branch offices, it does not offer such information
for nonbank lenders within a holding company. To
determine the affiliation of a local lender's
branch office, consumers are likely to find names
and addresses necessary-especially in light of the
many consolidations that are occurring in today's
financial marketplace and the similarities that
can exist in lenders' names.

FRB Did Not Routinely Forward Comment Letters
Because the enforcement of fair lending laws is
shared by a number of federal agencies and fair
lending problems may involve the interaction of
entities overseen by differing federal agencies,
coordinated information-sharing among the agencies
can contribute to effective federal oversight. FRB
staff told us they do not typically forward the
fair lending-related comment letters received
during the merger process to the appropriate
primary banking regulator, FTC, or HUD for
consideration in subsequent fair lending oversight
activities. FRB staff stated that they do refer
some of the fair lending-related comment letters
if they identify problems or practices that give
rise to supervisory concerns. They explained that
their internal policies and, in the case of HUD, a
Memorandum of Agreement between HUD and the
banking regulators require FRB to forward consumer
complaints by individuals to the appropriate
federal agency. 20 However, FRB staff stated that
comment letters that raised general fair lending
issues regarding lending patterns or policies
would not have been routinely forwarded to other
agencies. For example, FTC did not receive the
comment letters from consumer and community groups
that raised fair lending issues with the nonbank
mortgage subsidiaries of the holding companies
involved in four of the mergers. We believe that
by forwarding the fair lending-related comment
letters, FRB will provide the other agencies the
opportunity to detect problems that arise from the
interactions of entities under the holding company
structure that may otherwise go undetected.

Conclusions
The historical division of fair lending oversight
responsibility and enforcement authority presents
challenges and opportunities to agencies that have
jurisdiction over the entities in large bank
holding companies. Although large bank holding
companies typically include entities overseen by
different federal regulators, some types of fair
lending abuses could involve operating
relationships between such entities. An adequate
federal awareness during the merger application
process of fair lending compliance performance and
federal response to any alleged fair lending
abuses may well depend upon effective information-
sharing among the various agencies and the ready
availability to these agencies and the public of
information identifying lenders under the holding
company. Although the merger application process
is not intended to substitute for fair lending
examination or enforcement processes of individual
agencies, it presents an opportunity to enhance
the effectiveness of those processes. To take
advantage of this opportunity, the FRB's merger
application process for large bank holding
companies should provide that relevant
information, including consumer complaints or
consumer complaint data, be obtained from all
agencies with responsibility for compliance with
fair lending laws. Further, the process should
ensure that this information, as well as comment
letters received from consumer and community
groups, is shared among those agencies to assist
in their continuing efforts to identify and
oversee developments in mortgage lending that can
affect lender compliance with fair lending laws.

FRB, as regulator of bank holding companies, is
uniquely situated to monitor developments in
operating relationships among holding company
entities that could affect fair lending. Its role
could be especially valuable in monitoring the
lending activity of nonbank mortgage subsidiaries.
The FRB policy of not routinely examining nonbank
mortgage subsidiaries for fair lending compliance
and the FTC role as an enforcement agency rather
than a regulator result in a lack of regulatory
oversight of the fair lending performance of
nonbank mortgage subsidiaries whose growth in
lending out-paced other bank sector entities in
1997.

Recommendations
To enhance the consideration of fair lending
issues during the bank holding company merger
approval process, we recommend that the Board of
Governors of the Federal Reserve System develop a
policy statement and procedures to help ensure
that

ï¿½    all parties asked to provide information or
  views about the fair lending performance of
  entities within the bank holding companies are
  given or directed to sources for structural
  information about the holding companies, and
  
ï¿½    all federal agencies responsible for helping
  to ensure the fair lending compliance of entities
  involved in the proposed merger are asked for
  consumer complaints and any other available data
  bearing on the fair lending performance of those
  entities.
  
To aid in ongoing federal oversight efforts, we
recommend that FRB develop a policy and procedures
to ensure that it provides federal agencies
relevant comment letters and any other information
arising from the merger application process that
pertains to lenders for which they have fair
lending enforcement authority. For example, the
other agencies may be interested in receiving
FRB's HMDA analysis as well as the other data
obtained and analyzed by FRB in response to the
fair lending allegations raised in the comment
letters.

In addition, we recommend that FRB monitor the
lending activity of nonbank mortgage subsidiaries
and consider examining these entities if patterns
in lending performance, growth, or operating
relationships with other holding company entities
indicate the need to do so.

Agency Comments and Our Evaluation
We requested comments on a draft of this report
from the Chairman of the Federal Reserve Board,
the Comptroller of the Currency, the Secretary of
Housing and Urban Development, the General Counsel
of the Federal Trade Commission, and the Assistant
Attorney General for Administration of the
Department of Justice. Each agency provided
technical comments, which we incorporated into the
report where appropriate. In addition, we received
other written comments from FRB, OCC, and HUD;
these are reprinted in appendixes IV through VI of
this report.

With respect to the draft report's
recommendations, FRB sought clarification
regarding the first recommendation, generally
agreed with the next two recommendations, and
disagreed with the last recommendation. OCC and
HUD did not disagree with our recommendations and
expressed their support for efficient and
effective enforcement of the fair lending laws.
Further, HUD suggested that a more formal
arrangement be created for obtaining and
considering agency input during FRB's merger
approval process.

FRB sought clarification of our intent in the
first recommendation-that, when soliciting
comments on proposed bank holding company mergers,
FRB provide structural information about those
holding companies. FRB said that information about
holding company structure is available to the
public and federal agencies on the Internet at the
Federal Reserve's National Information Center
(NIC) site and, upon request, from the Board and
the Reserve Banks. FRB also said that the
information is often in the application filed by
the applicant bank holding company, for those who
elect to review the application in full; and the
information is widely available from publications
and from other federal agencies.

We added information to the text to clarify our
intent. Our intent in recommending that FRB
provide the structural information or a source or
sources of such information is to enhance
consideration of fair lending issues during the
merger approval process. We believe that the
provision of structural information, including
names and addresses of branch offices of lenders,
or directions about how to obtain that
information, can help ensure that FRB receives
from interested parties timely and complete fair
lending information on lenders involved in the
merger. Without being able to identify the bank
and nonbank lenders in the holding companies
involved in a merger, interested parties could be
unable to determine if lenders whose actions have
raised fair lending concerns are affiliated with
those holding companies. We do not disagree that
this information is sometimes available from a
variety of sources. However, ready public access
to that information depends upon public awareness
of the availability of the information. We note
that none of the Federal Register notices
requesting public comment on bank holding company
mergers in our sample that occurred after 1997,
when NIC was created, mentioned the NIC Internet
site or any other source of information about the
structure of the applicant bank holding companies.

Responding to the report's statement that
information provided on NIC can be quite lengthy
and complex, FRB said that it believed the
complexity is largely a reflection and a function
of the size and scope of these large
organizations. FRB also said it was not clear just
how the information could be made simpler for the
public. We agree that the complexity of the
information about the largest bank holding
companies on NIC is a function of the size and
scope of these organizations. However, we also
believe that the information could be narrowed,
and in that way simplified, by a mechanism that
could help interested parties focus on the
relevant details of the holding company's
structure. A variety of entities are often
affiliated with large holding companies,
including, for example, investment, leasing, and
real estate development companies. A NIC search
mechanism to narrow the structural information to
bank and nonbank lenders affiliated with a holding
company would aid federal agencies and consumer
organizations that may need such information to
collect or sort through fair lending concerns
about such institutions from field offices or
member organizations nationwide. 21 More focused
information, including names and addresses of
branch offices, would also benefit consumers
attempting to determine the affiliation of a local
lender's office.

As mentioned in the report, NIC provides a
mechanism for obtaining lists of the names and
addresses of banking institutions' branch offices;
however, it does not provide the addresses of
nonbank lenders' branch offices or list such
branch offices. We believe that this is an
important weakness in NIC as a tool to be used in
the merger application process by agencies,
consumer groups, and individuals, considering the
prevalence of concerns about nonbanks' fair
lending performance in the merger cases we
analyzed.

FRB said that persons generally start out with the
identity of the organization about which they have
concerns, and it should be relatively simple to
confirm whether that organization is affiliated
with an applicant bank holding company. We agree
that persons would generally use NIC to determine
if an identified organization is affiliated with
an applicant bank holding company. However, the
ease of determining this through NIC could vary,
depending upon whether the organization of concern
is a banking institution or a nonbank subsidiary
of the holding company. As of October 10, 1999,
NIC users could determine the holding company
affiliation of a banking institution (but not a
nonbank holding company subsidiary) by entering
the legal name of a banking institution (or even
part of that name) and the city and state in which
the institution is located. NIC also offered a
function enabling users to obtain a listing of
addresses of all branch offices of banking
institutions (but not addresses of franchises or
branch offices of lenders that are nonbank holding
company subsidiaries). To confirm a nonbank
lenders' affiliation with an applicant bank
holding company, the interested party's only
option is to search for the nonbank lender's legal
name while reading through the multipage listings
of entities that describe the entire hierarchial
structure, starting with the parent holding
company. The only geographical information
provided for a nonbank holding company subsidiary
in the listing is the city and state domicile of
the head office-that is, no branch offices or
franchises are identified in the listing.

Referring to our mention of the absence of
geographic information on NIC, FRB notes that a
person's concerns about a particular entity will
likely relate to the geographic area in which the
person resides, or to which the person has some
link. We agree with this statement. We also
believe that a person concerned about a particular
local lender is likely to need to see the names
and addresses of lenders affiliated with holding
companies involved in a proposed merger to
determine if his concern about the local lender is
relevant for FRB's consideration.

With regard to our recommendation for greater
information sharing between FRB, the other banking
regulators, HUD, and FTC during the merger
application process, FRB generally agreed and said
it would explore ways to enhance the systematic
exchange of relevant information. However, FRB did
not agree that it should seek information about
other agencies' consumer complaints as part of the
merger application review process. The reasons for
this were:

ï¿½    A 1992 Memorandum of Understanding between
HUD and the banking regulators' calls for HUD to
refer allegations of fair lending violations to
the appropriate banking regulator, which is to
take these into account in examinations and
supervisory activity.
ï¿½    HUD cases involving individual or isolated
grievances-and not a finding of a pattern or
practice-would not likely represent the type of
information that is particularly useful in FRB's
review of managerial resources for purposes of the
Bank Holding Company Act.

Although the 1992 Memorandum of Understanding
between HUD and the banking regulators calls for
the referral of allegations of fair lending
violations to the appropriate banking regulator,
it does not address the referral of these fair
lending allegations to FRB for consideration
during the bank holding company merger application
process. The fair lending allegations received by
HUD, FTC, and the other banking regulators could
be useful to FRB in its consideration of the
managerial resources factor during the merger
process. We acknowledge that not all consumer
complaints received by other agencies would be
relevant for FRB to consider during the bank
holding company merger process. However, an
otherwise unobserved pattern or practice bearing
on the managerial resources of a large and complex
holding company could emerge from a review of
widely collected consumer complaints. Moreover,
consumer complaint letters can be a useful
indicator of certain types of illegal credit
discrimination, such as discriminatory treatment
of applicants and illegal prescreening and
marketing. FRB stated that the exchange of
information between agencies should (1) ensure
that the information is provided in a timely
manner and (2) maximize the benefits of the
exchange while minimizing the burden to all
parties. We concur with FRB's expectations
regarding the exchange of information and
acknowledge FRB's initiative in planning to
consult with the other federal agencies to
identify possible ways to enhance the systematic
exchange of relevant information.

FRB stated that it planned to take action in
response to our recommendation that it provide
copies of relevant comment letters received during
the merger application process to the other
federal agencies involved with fair lending
enforcement. Specifically, FRB indicated that it
would consult with the other agencies and was
prepared to establish whatever mechanism deemed
appropriate to ensure that the agencies receive
public comments that they would find helpful to
ongoing supervisory oversight. FRB's plans are a
positive first step in responding to our
recommendation.

FRB disagreed with our recommendation as stated in
the draft report that it monitor the lending
activities of nonbank mortgage subsidiaries and
consider reevaluating its policy of not routinely
examining these entities if circumstances
warranted. FRB stated that it had recently studied
this issue at length and concluded that although
it had the general legal authority to examine
nonbank mortgage subsidiaries of bank holding
companies, it lacked the clear enforcement
jurisdiction and legal responsibility for engaging
in routine examinations. We revised the wording of
our recommendation to clarify that we were not
necessarily recommending that FRB consider
performing routine examinations of nonbank
mortgage subsidiaries. We recognize that FTC has
the primary fair lending enforcement authority for
the fair lending compliance of nonbank mortgage
subsidiaries. However, FRB is uniquely situated to
monitor the activities of these nonbank mortgage
subsidiaries by virtue of its role as the
regulator of bank holding companies and its
corresponding access to data that are not readily
available to the public or other agencies, such as
FTC. If patterns in growth, lending performance,
or operating relationships with other holding
company entities do not change dramatically, then
there may be no reason to examine these entities.
Monitoring the lending activities of the nonbank
mortgage subsidiaries would help FRB determine
when it would be beneficial to conduct targeted
examinations of specific nonbank mortgage
subsidiaries using size, extent of lending in
predominately minority communities, involvement in
sub-prime lending, or other factors as the basis
for selection. In other cases, FRB may determine
that the results of its monitoring efforts should
be referred to those agencies responsible for
enforcement of nonbank mortgage subsidiaries'
compliance with fair lending laws.

OCC and HUD did not disagree with our
recommendations. OCC stated that it was committed
to working with all the agencies that have a role
in providing efficient and effective oversight of
compliance with fair lending laws. HUD stated that
it stands committed to enhancing coordination
among federal agencies to achieve fair lending.
HUD noted its support for efforts to ensure
greater compliance among nondepository lenders
with the FHAct and other consumer protection laws.
HUD suggested that a memorandum of understanding
that would govern interagency coordination during
the merger application process might be
appropriate. Such a memorandum could be a useful
tool to document each agency's responsibility
regarding information sharing and coordination
during the merger application process for bank
holding companies.

As agreed with your offices, we are sending copies
of this report to Representative Rick Lazio,
Chairman, and Representative Barney Frank, Ranking
Minority Member, of the House Subcommittee on
Housing and Community Opportunities;
Representative James Leach, Chairman, and
Representative John LaFalce, Ranking Minority
Member, of the House Committee on Banking and
Financial Services; and Senator Phil Gramm,
Chairman, and Senator Paul Sarbanes, Ranking
Minority Member, of the Senate Committee on
Banking, Housing, and Urban Affairs. We are also
sending copies of the report to the Honorable Alan
Greenspan, Chairman, Board of Governors of the
Federal Reserve System; the Honorable John D.
Hawke, Jr., Comptroller of the Currency; the
Honorable Andrew Cuomo, Secretary, Department of
Housing and Urban Development; the Honorable
Stephen R. Colgate, Assistant Attorney General for
Administration, Department of Justice; and the
Honorable Deborah A. Valentine, General Counsel,
Federal Trade Commission. Copies will also be made
available to others on request.

If you or your staff have any questions regarding
this letter, please contact me or Kay Harris at
(202) 512-8678. Key contributors to this report
are acknowledged in appendix VII.

Thomas J. McCool
Director, Financial Institutions
 and Markets Issues
 

_______________________________
1The requesters also asked us to assess the impact
of large bank mergers on community lending to low-
and moderate-income neighborhoods and the Federal
Reserve Board's process for assessing the
Community Reinvestment Act performance of merger
applicants. We conducted a separate assignment to
address these issues. See Federal Reserve Board:
Merger Process Needs Guidelines for Community
Reinvestment Issues, GAO/GGD-99-180 (Sept. 25,
1999).
2The six bank holding company mergers that we
looked at ultimately resulted in four holding
companies.
3The regulatory role of FRB includes scrutiny of
proposed transactions that involve bank holding
companies and member banks of the Federal Reserve
System. FRB administers the Bank Holding Company
Act, which requires FRB approval of the
acquisition of banks, bank holding companies, and
nonbank affiliates by bank holding companies.
Under the Bank Merger Act, FRB must approve
mergers involving state member banks and may deny
acquisition of a state member bank under the
Change in Bank Control Act.
4Fair Lending: Federal Oversight and Enforcement
Improved but Some Challenges Remain, GAO/GGD-96-
145 (Aug. 13, 1996).
5Sub-prime lending refers to the extension of
credit to higher risk borrowers, a practice also
referred to as "B/C" or "nonconforming credit."
6Discriminatory prescreening and marketing refer
to practices that selectively discourage or
encourage applicants with respect to inquiries
about or applications for credit at the
preapplication stage.
7Redlining is the refusal of lenders to make
mortgage loans in certain geographic areas,
typically minority or low-income neighborhoods,
regardless of the creditworthiness of the loan
applicant.
8In the context of this report, the term "federal
banking regulators" refers to FRB, the Office of
the Comptroller of the Currency (OCC), the Federal
Deposit Insurance Corporation (FDIC), and the
Office of Thrift Supervision (OTS).
9For data collection in 1998, depository
institutions with a home or branch office in a
metropolitan statistical area (MSA) had to report
HMDA data if they had more than $29 million in
assets as of December 31, 1997. Nondepository
lenders were required to report HMDA data if they
had assets of more than $10 million and had an
office or loan activity in an MSA. They were also
required to report, regardless of asset size, if
they originated 100 or more home purchase loans
(including refinancings) during the calendar year.
Depository institutions are exempt from reporting
HMDA data if they made no first-lien home purchase
loans (including refinancings of home purchase
loans) on one-to-four family dwellings in the
preceding calendar year. Nondepository
institutions are exempt if their home purchase
loan originations (including refinancing of home
purchase loans) in the preceding calendar year
came to less than 10 percent of all their total
loan originations (measured in dollars).
10FFIEC was established in 1979 as a formal
interagency body empowered to prescribe uniform
principles, standards, and report forms for the
federal examination of financial institutions and
to make recommendations to promote uniformity in
the supervision of these institutions. The
Council's membership is composed of FRB, OCC,
FDIC, OTS, and the National Credit Union
Administration.
11GAO/GGD-96-145, p. 66.
12According to the 1994 Policy Statement issued by
the Interagency Task Force on Fair Lending, the
courts have recognized three methods of proof of
lending discrimination under ECOA and FHAct: overt
evidence of discrimination, disparate treatment,
and disparate impact. Overt evidence of
discrimination exists when a lender blatantly
discriminates on a prohibited basis. Disparate
treatment occurs when a lender treats applicants
differently on the basis of one of the prohibited
factors. Disparate impact occurs when a lender
applies a policy or practice uniformly to all
applicants but the policy or practice has a
discriminatory effect on a prohibited basis and is
not justified by business necessity.
13Interagency Guidance on Subprime Lending, as
adopted by FRB, OCC, FDIC, and OTS on March 1,
1999.
14The Community Reinvestment Act requires the
federal banking regulators to encourage depository
institutions to help meet credit needs in all
areas of the communities they serve, including low-
and moderate-income neighborhoods, consistent with
safe and sound operations. CRA regulations issued
by the banking regulators require nonexempt
depository institutions to annually report data on
small business loans they originated or purchased.
15Matched-pair testing consists of having similarly
qualified "testers" (e.g., one minority and the
other nonminority) pose as prospective loan
applicants. After discussing loan possibilities on
an individual basis with an institution, the
testers document their treatment and the
completeness of the information given to them by
the institution's personnel.
16Representatives of one of the primary banking
regulators explained that examiners did not have
examination procedures for such fair lending
issues as redlining and steering prior to the
adoption of Interagency Fair Lending Examination
Procedures in January 1999.
17According to FRB, one bank holding company merger
or acquisition application has been denied on the
basis of fair lending compliance issues. In 1993,
FRB denied the application by Shawmut National
Corporation to acquire the New Dartmouth Bank on
the basis of fair lending concerns. In denying the
application, FRB cited DOJ's and FTC's ongoing
joint investigation of the lending practices of
Shawmut Mortgage Company, a holding company
affiliate. The statement also emphasized
inaccuracies in HMDA data reported by Shawmut. The
investigation was prompted by a 1992 FRB referral
reflecting its concern that Shawmut, through the
mortgage affiliate, may have engaged in
discriminatory treatment of minorities in mortgage
lending in Boston. At the time of the application,
DOJ and FTC had not yet completed their joint
investigation.
18FRB also solicited information from the relevant
state regulator of the banking subsidiaries of the
holding companies involved in the merger.
19The NIC data can be accessed at
http://www.ffiec.gov/nic.
20Executive branch agencies are required to notify
HUD of FHAct violations and complaints under
Executive Order 12892. Exec. Order No. 12892, 59
Fed. Reg. 2, 939 (1994).
21Nonbank subsidiaries of large holding companies
include firms engaged in a wide variety of
activities. For example, lenders that are nonbank
subsidiaries of holding companies could include
mortgage companies and finance companies.

Appendix I
Status of Actions on Recommendations Made in Our
1996 Report
Page 32GAO/GGD-00-16 Large Bank Mergers and Fair L
ending
GAO recommendation        Responsible agency(ies)   Action taken by
                                                  agency(ies)
Remove the disincentives  Federal Reserve Board     Congress enacted
associated with self-     (FRB) and Department of   legislation in September
testing.                  Housing and Urban         1996. FRB and HUD issued
                         Development (HUD)         implementing regulations
                                                  in December 1997.a
Develop and adopt uniform FRB, Office of the        The Federal Financial
fair lending examination  Comptroller of the        Institutions Examination
procedures.               Currency (OCC), Federal   Council approved
                         Deposit Insurance         Interagency Fair Lending
                         Corporation (FDIC),       Examination Procedures in
                         Office of Thrift          December 1998.b
                         Supervision (OTS), and    
                         National Credit Union
                         Administration (NCUA)
Adopt guidelines and      FRB, OCC, FDIC, OTS, and  FRB - yesc
procedures for the use of NCUA                      OCC - yes
preapplication                                     FDIC - nod
discrimination testing.                            OTS - noe
                                                  NCUA - no
                                                  
Use full range of         FRB, OCC, FDIC, OTS, and  FRB - yes
enforcement authority,    NCUA                      OCC - yes
including civil money                              FDIC - yes
penalties, to ensure                               OTS - yes
timely and accurate HMDA                           NCUA - nog
data.                                              
Update guidance on the    Department of Justice     DOJ issued updated
characteristics of        (DOJ)                     guidance on pattern and
referable pattern or                               practice of
practice cases under ECOA                          discrimination to the
and FHA.                                           banking regulators and
                                                  HUD in November 1996.h
aEconomic Growth and Regulatory Paperwork
Reduction Act of 1996, sec. 2302 (a)(1) & (b)(1),
15 U.S.C. 1691c-1(1996); Regulation B, 12 C.F.R.
sec. 202.15(1998)(FRB's implementing regulation on
self-testing); and 12 C.F.R. parts 100 and 103
(1998) (HUD's implementing regulation on self-
testing).
bFRB, FDIC, and OTS have implemented the
procedures. OCC and NCUA indicated they are in the
process of developing additional guidance to use
in conjunction with the Interagency Fair Lending
Examination Procedures.
cFRB stated it has authorized the use of
preapplication testing in its reserve banks.
However, none of the reserve banks have conducted
any tests to date.
dIn a letter dated September 4, 1998, FDIC stated
it does not engage in the use of testers in fair
lending examinations. Instead, FDIC encourages
banks to implement their own testing programs, and
FDIC examiners are to undergo training relative to
a bank's self-testing program.
eOTS has initiated a project to determine the
feasibility of conducting a preapplication testing
program.
fNCUA is in the process of developing guidance to
address preapplication testing.
gNCUA indicated that timely and accurate HMDA data
has not been identified as a problem; therefore,
it has not assessed civil money penalties.
hDepartment of Justice Memorandum, "Identifying
lender practices that may form the basis of a
pattern or practice referral to the Department of
Justice," November 1996.
Source: Data provided by FRB, OCC, FDIC, OTS,
NCUA, DOJ, and HUD.

Appendix II
Emerging Fair Lending Issues Not Raised in the Six
Mergers
Page 35GAO/GGD-00-16 Large Bank Mergers and Fair L
ending
In addition to the issues raised by consumer and
community groups in the six mergers that we looked
at, representatives of the regulatory and
enforcement agencies and the bank holding
companies we contacted identified various emerging
fair lending issues. These issues involved (1)
credit scoring, (2) automated loan underwriting,
and (3) mortgage brokers. The fair lending
concerns associated with these three issues are
discussed below. We do not attempt to address all
of the various and complex enforcement,
compliance, and consumer protection issues
associated with each of the three topics. Instead,
we highlight some of the fair lending concerns
that have been associated with each topic.

Credit-Scoring Issues

The Federal Reserve Board (FRB) and the Department
of Justice (DOJ) raised the issue of potential
discrimination in credit scoring as an emerging
fair lending concern. The Office of the
Comptroller of the Currency (OCC) expressed the
concern that some lenders may view credit scoring
as a safe harbor from fair lending issues. This
would ignore the possibility that differential
treatment may occur in segmenting the applicant
population during the development or input of the
data, or in judgmental overrides of the credit-
scoring system.

According to credit reporting companies (credit
bureaus), credit scoring is intended to be an
objective method for predicting the future credit
performance of borrowers. Credit scoring has
gained wide usage among lenders who use it to make
lending decisions on various types of loans, such
as installment; personal finance; bankcard; and,
most recently, mortgages. To develop a credit-
scoring system, lenders generally use a risk-
scoring process that examines consumer credit
reports, assigns numerical values to specific
pieces of information, puts those values through a
series of mathematical calculations, and produces
a single number called a risk score or credit
score. Lenders generally offer credit to borrowers
with the higher scores. The premise is that the
higher scores indicate a better likelihood that
the borrower will repay the loan.

According to FRB, discrimination in credit scoring
could be revealed in two ways, either through
disparate treatment or disparate impact. Disparate
treatment and disparate impact are methods of
analyzing whether discrimination exists. The
disparate treatment analysis determines whether a
borrower is treated less favorably than his/her
peers due to race, sex, or other characteristics
protected by the Equal Credit Opportunity Act
(ECOA) or the Fair Housing Act (FHAct). The
disparate impact analysis determines whether a
lender's seemingly neutral lending policy has a
disproportionately adverse impact against a
protected group, the policy is justified by
business necessity, and a less adverse alternative
to such policy or practice exists.

OCC, DOJ, and the Federal Trade Commission (FTC)
agree that fair lending concerns in credit scoring
most often arise when lenders ignore the credit
score (i.e., override the score) and use
subjective judgment to make a lending decision.
Fair lending concerns associated with credit
scoring were not raised as an issue in any of the
six bank holding company mergers in our study.
Officials from all four of the bank holding
companies we interviewed stated they used credit-
scoring systems. However, they indicated that
their credit-scoring systems were applied with
safeguards designed to ensure compliance with fair
lending laws and regulations.

From 1990 through 1998, the regulators and
enforcement agencies had few cases of
discrimination in credit scoring. OCC referred a
case in 1995 and another in 1998 to DOJ that dealt
with alleged discrimination in credit scoring. An
agreement was reached with OCC in the 1995 case,
and the 1998 referral resulted in DOJ filing a
lawsuit. In this particular case, DOJ alleged that
the bank required a higher credit score for
Hispanic applicants to be approved for
loans/credit. FTC cited one case of credit
discrimination in 1994, which resulted in a
consent decree. In this case, the lender had used
overrides of the credit-scoring system that
discriminated against applicants on the basis of
marital status.

Automated Loan Underwriting Issues
The fair lending issues that were raised regarding
credit scoring are closely associated with the
issues associated with automated loan
underwriting. According to the Federal National
Mortgage Association (Fannie Mae), automated loan
underwriting is a computer-based method that is
intended to enable lenders to process loan
applications in a quicker, more efficient,
objective, and less costly manner. The lender
enters information from the borrower's application
into its own computer system. This information is
communicated to an automated loan underwriting
system, such as those developed by Fannie Mae and
the Federal Home Loan Mortgage Corporation
(Freddie Mac). The lender then requests a credit
report and credit score from a credit bureau. The
automated loan underwriting system then evaluates
the credit bureau data and other information to
arrive at a recommendation about whether or not
the loan meets the criteria for approval.

The following is an excerpt from a recent report
by the Department of Housing and Urban Development
(HUD) on the single-family underwriting and
appraisal guidelines of Fannie Mae and Freddie Mac
that summarizes some of the fair lending concerns
associated with automated loan underwriting
systems:

"Currently, there is little known about the
effects of automated underwriting systems on low-
and moderate-income or minority applicants. Some
informants believe these systems may prevent
underwriters [lenders] from taking full advantage
of the increased levels of underwriting
flexibility allowed by the GSEs [government-
sponsored enterprises]. Lower income applicants
are more likely to be required to produce
documentation supporting their loan application,
such as letters explaining past credit problems or
statements from employers about expected salary
increases. Automated systems may not have the
ability to assess all of these kinds of data, and
so may place lower income borrowers at a
disadvantage. Informants also raised concerns that
these systems may allow lenders to reduce their
underwriting staff because automated systems
increase the productivity of individual
underwriters. Lenders, informants pointed out,
could reduce staff and only process applications
identified by automated systems as requiring
minimal further review. As a result, automated
systems may make it harder for marginal applicants
to receive personalized attention from an
underwriter."1 "

Representatives of the four holding companies that
resulted from the mergers included in our study
stated that they all used automated loan
underwriting and credit-scoring systems to some
degree. Three of the four holding companies said
they have adopted a program in which loans that
are not initially approved by their automated loan
underwriting systems are subject to a secondary
review by an experienced loan underwriter.
Although the secondary review programs added
additional costs and time to the process, the
holding companies stated that it was necessary to
guard against potential disparate impacts with
respect to lending to minorities.

Mortgage Broker Issues
Another concern that was raised by bank holding
company officials that we met with involved a
lender's liability for the fair lending activities
of mortgage brokers who are affiliated in some
fashion with the lender. Although no standard
definition of a mortgage broker exists, mortgage
brokers are generally entities that provide
mortgage origination or retail services and bring
a borrower and a creditor together to obtain a
loan from the lender (or funded by the lender).2
Typically, the lender decides whether to
underwrite or fund the loan. HUD defines two
categories of mortgage brokers. HUD's narrowly
defined category consists of entities that may
have an agency relationship with the borrower in
shopping for a loan and therefore have a
responsibility to the borrower because of this
agency representation. HUD's broadly defined
category consists of entities who do not represent
the borrower but who may originate loans with
borrowers utilizing funding sources in which the
entity has a business relationship. The banking
industry is concerned that lenders could be held
liable for a fair lending violation resulting from
the activity of a mortgage broker that provides
origination or retail services for a lender. When
lenders use mortgage brokers in providing mortgage
credit, it is not always clear whether the lender,
the mortgage broker, or both are responsible for
the credit approval decision. FRB officials noted
differences between the federal enforcement
agencies and FRB with respect to the criteria used
to determine when lenders are responsible for
lending transactions involving brokers.

Of the four holding companies resulting from the
mergers in our study, three indicated that they
use mortgage brokers. Officials of one of the
holding companies we contacted said they wanted
additional clarification from bank regulators
regarding the bank's liability for its lending
decisions in transactions involving brokers
because it used mortgage brokers extensively in
making loans for manufactured housing and
automobile loans.

ECOA, as implemented by FRB's Regulation B,
defines a creditor as someone who "regularly
participates" in credit-making decisions.
Regulation B includes in the definition of
creditor "a creditor's assignee, transferee, or
subrgee who so participates." For purposes of
determining if there is discrimination, the term
creditor also includes "a person who, in the
ordinary course of business, regularly refers
applicants or prospective applicants to creditors,
or selects or offers to select creditors to whom
requests for credit may be made." Regulation B
states that "a person is not a creditor regarding
any violation of ECOA or regulation B committed by
another creditor unless the person knew or had
reasonable notice of the act, policy, or practice
that constituted the violation before becoming
involved in the credit transaction." This is
referred to as the "reasonable notice" standard.
On the basis of the definition of creditor
contained in Regulation B and the specific facts,
a mortgage broker can be considered a creditor and
a lender can also be considered a creditor even if
the transaction involves a mortgage broker.

FRB noted that lenders have increasingly asked for
guidance regarding the definition of a creditor as
they expand their products and services. In March
1998, FRB issued an Advance Notice of Proposed
Rulemaking that solicited comments related to the
definition of "creditor" and other issues as part
of its review of Regulation B. Specifically, FRB
solicited comments on whether (1) it was feasible
for the regulation to provide more specific
guidance on the definition of a creditor; (2) the
reasonable notice standard regarding a creditor's
liability should be modified; and (3) the
regulation should address under what circumstances
a creditor must monitor the pricing or other
credit terms when another creditor (e.g., a loan
broker) participates in the transactions and sets
the terms.

On August 4, 1999, FRB published proposed
revisions to Regulation B that expand the
definition of creditor to include a person who
regularly participates in making credit decisions,
including setting credit terms. In the Discussion
of Proposed Revisions to the Official Staff
Commentary (the Discussion), FRB stated that it
believes that it is not possible to specify by
regulation with any particularity the
circumstances under which a creditor may or may
not be liable for a violation committed by another
creditor. Thus, FRB decided that Regulation B
would retain the "reasonable notice" standard for
when a creditor may be responsible for the
discriminatory acts of other creditors. In the
Discussion, FRB further stated that it believes
that the reasonable notice standard may carry with
it the need for a creditor to exercise some degree
of diligence with respect to third parties'
involvement in credit transactions, such as
brokers or the originators of loans. However, FRB
believes that is not feasible to specify by
regulatory interpretation the degree of care that
a court may find required in specific cases.

Opinions vary among regulatory agencies in terms
of a lender's liability in transactions that
involve mortgage brokers. OCC and FRB share the
view that a broker must be an agent of the lender,
or the lender must have actual or imputed
knowledge of a broker's discriminatory actions,
for a lender to share liability for discrimination
by a broker. DOJ has taken the position that
lenders are liable for all of their lending
decisions, including those transactions involving
mortgage brokers. In 1996, DOJ took one
enforcement action involving a mortgage broker.
The case involved mortgage company employees and
brokers charging African-American, Hispanic,
female, and older borrowers higher fees than were
charged to younger, White males. HUD officials
told us their agency has not taken a position on
this issue. FTC officials told us that FTC has not
taken any action that reflects a position on this
issue.

_______________________________
1A Study of the GSEs' Single Family Underwriting
Guidelines, Final Report, April 1999, Department
of Housing and Urban Development.
2According to HUD, mortgage brokers initiate an
estimated half of all home mortgages made each
year in the United States. This estimate covers
loans originated by all lender types, including
independent finance companies that are not
affiliated with insured depository institutions or
their holding companies. (See app. III for data
regarding the number of loans originated from 1995
through 1997 by lender type.)

Appendix III
Data on Loans Originated by Institution Type From
1995 Through 1997
Page 39GAO/GGD-00-16 Large Bank Mergers and Fair L
ending
From 1995 through 1997, Federal Reserve Board
(FRB) data indicated that home mortgage lending
activity1 by institution type within the financial
sector generally increased as measured by the
total number of loans originated. Figure III.1
provides an overview of mortgage lending activity
by financial sector.2 It shows that the bank
sector originated more loans than the thrift
sector or independent finance companies over this
period when the large bank holding company mergers
we studied occurred. As discussed previously,
banking regulators (FRB, Office of the Comptroller
of the Currency, the Federal Deposit Insurance
Corporation, and the Office of Thrift Supervision)
have the primary oversight responsibility for the
bank and thrift sectors. The Federal Trade
Commission (FTC) and the Department of Housing and
Urban Development (HUD) are responsible for fair
lending enforcement of independent finance
companies, which are not addressed in this study.

Figures III.2 and III.3 provide overviews of
lending by components of the bank sector: banks,
bank subsidiaries, and nonbank mortgage
subsidiaries of bank holding companies. The home
mortgage lending activity of the three components
has remained relatively stable from 1995 to 1997.
Figure III.2 shows that banks originated the most
home mortgage loans in this period followed by
bank subsidiaries and then nonbank mortgage
subsidiaries of bank holding companies. Figure
III.3 reveals the same pattern when dollar value
of loans is considered. However, the data reveal
larger percentages in the dollar value of home
mortgage loan originations for both bank
subsidiaries and bank holding company mortgage
subsidiaries in comparison to the share of
mortgage loan originations. The banking regulators
are responsible for the fair lending oversight of
the banks and bank subsidiaries; FTC and HUD are
responsible for fair lending enforcement of the
nonbank mortgage subsidiaries of bank holding
companies.

Because the nonbank mortgage subsidiaries of bank
holding companies are not routinely examined for
fair lending compliance by any federal regulatory
or enforcement agencies, we analyzed their rate of
growth compared to other bank sector lenders.
Figure III.4 shows that in 1997, the percent
change in loan originations by nonbank mortgage
subsidiaries of bank holding companies was large
in comparison to loan originations by banks and
banking subsidiaries. Figure III.5 shows that the
dollar value of mortgage loan originations has a
pattern similar to the percentage change in loan
originations. Figure III.4 and III.5 combined show
an increasing presence in home mortgage lending by
nonbank mortgage subsidiaries of bank holding
companies.

Figure III.1:  Loans Originated by Financial
Sector From 1995 to 1997

Source: HMDA data provided by Division of Research
and Statistics, FRB.

Figure III.2:  Proportion of the Number of Loans
Originated by Bank Sector Component From 1995 to
1997

Source: HMDA data provided by Division of Research
and Statistics, FRB.

Figure III.3:  Proportion of the Dollars of Loans
Originated by Bank Sector Component From 1995 to
1997

Source: HMDA data provided by Division of Research

and Statistics, FRB.

Figure III.4:  Percent Change in the Number of
Loan Originations for Each Bank Sector Component
From 1995 to 1997

Source: GAO analysis of HMDA data provided by
Division of Research and Statistics, FRB.

Figure III.5:  Percent Change in the Dollar Value
of Loan Originations for Each Bank Sector
Component From 1995 to 1997

Source: GAO analysis of HMDA data provided by
Division of Research and Statistics, FRB.

_______________________________
1 The Home Mortgage Disclosure Act Data (HMDA) on
lending activity includes: (1) purchasing loans
for single and multifamily dwellings, manufactured
homes, and mobile homes; (2) home equity loans;
and (3) mortgage refinances.
2 Credit Union data were not included in the
figures due to the relatively small volume of
mortgage loans they originated versus the other
types of lenders.

Appendix IV
Comments From the Federal Reserve Board
Page 47GAO/GGD-00-16 Large Bank Mergers and Fair L
ending

Appendix V
Comments From the Office of the Comptroller of the
Currency
Page 49GAO/GGD-00-16 Large Bank Mergers and Fair L
ending

Appendix VI
Comments From the Department of Housing and Urban
Development
Page 50GAO/GGD-00-16 Large Bank Mergers and Fair L
ending

Appendix VII
GAO Contacts and Staff Acknowledgments
Page 51GAO/GGD-00-16 Large Bank Mergers and Fair L
ending
GAO Contacts
Tom McCool, (202) 512-8678
Kay Harris, (202) 512-8678

Acknowledgments
     In addition to those named above, Harry
Medina, Janet Fong, Christopher Henderson,
Elizabeth Olivarez, and Desiree Whipple made key
contributions to this report.

*** End of Document ***