Big Crackdown on Home Loan Bias : Banking: The new federal effort will use ‘testers’ to pose as potential borrowers to investigate racial and ethnic discrimination.

WASHINGTON — National bank examiners will embark on a major new effort to root out ethnic and racial bias in home mortgage lending, regulators announced Wednesday.

Effective immediately, examiners employed by the Office of the Comptroller of the Currency will follow a new set of procedures for detecting discrimination in residential lending by national banks.

“The OCC will not tolerate discrimination in any form in national banks,” Comptroller Eugene Ludwig said at a press briefing. “Credit and other banking decisions simply cannot be made on the basis of where a person’s parents came from, the color of his or her skin, his or her religion, or gender.”

The plan also calls for using “testers” to pose as potential borrowers, a first for the 130-year-old agency.

The concerted crackdown follows the release of government studies indicating that racial disparity in mortgage lending still exists despite federal efforts to wipe out the practice.

The comptroller’s program broadly expands practices it had used on a limited basis. Examinations have until now been aimed at identifying cases where “clearly qualified” minority loan applicants were denied credit.

But the new program is also aimed at cracking down on less obvious forms of bias, the agency said. A Justice Department probe in Atlanta and a study by the Federal Reserve Bank of Boston have shown “that there was much more to look for in the area of more subtle discrimination,” Ludwig said.

The Boston Fed study found that even when economic factors were taken into account, black and Latino applicants still were more likely to be denied home credit--with race an apparent factor in 60% of rejections. Last year, a Fed study reported that in 1991, black applicants were denied loans at twice the rate of whites.

The examiners will compare mortgage loan approvals for white applicants with those of rejections for minority applicants to determine whether loan officers have discriminated against applicants with the same qualifications.

Examiners will seek to determine whether banks give the same assistance to minority and non-minority applicants during the loan process.

But the agency said it would explore the possibility of lifting the ban on recording information about business and general consumer loan applicants’ race or national origin. The procedures are aimed primarily at banks with at least five mortgage loan denials for blacks, Latinos or American Indians--about 900 institutions that hold the majority of national bank assets and deposits.