housing, VA has not yet changed its policy to conform to those laws. C. Collection of Racial and Ethnic Data If in the case of racially restrictive covenants and one- and two-family owner-occupied housing, VA policy has lagged behind that of FHA, in another area of critical importance VA has moved ahead of its sister housing agency. Beginning in the fall of 1968, VA took steps to determine the extent of participation of minority groups in the sale of VA-acquired properties.182 FHA did not follow suit. In August 1969 VA proposed to the Bureau of the Budget that the agency collect data on racial and ethnic participation in the loan guaranty program. It was deemed important, however, for VA and FHA to move together on this matter and Bureau approval of forms to collect these data was held up pending concurrence by HUD.183 It was not until April 1970 that HUD made the decision to go forward with such data collection with respect to all of its programs. The Department is currently working out problems of implementation. Thus, as of June 1970 VA, which had proposed the procedure nearly a year earlier, had not yet put its data collection system into effect. Service.184 Complaint investigations are handled by personnel in the VA field offices, not by civil rights specialists, although occasionally central office equal opportunity personnel participate on their own initiative.185 E. Compliance Reviews Other than requiring a nondiscrimination certification from builders, the only compliance reviews conducted by VA are through complaint investigations. For example, VA does not use the device of testing to determine compliance,186 nor does it conduct any other form of onsite compliance review. Further, VA, unlike FHA, has not undertaken any racial and ethnic occupancy surveys of VA subdivisions. 187 Complaint investigations have not proved to be a particularly effective way of assuring compliance with VA nondiscrimination requirements. From the issuance of Executive Order 11063 in November 1962 until June 1969 a total of 75 complaints were received and investigated.188 Of these only 12 resulted in a finding of discrimination and in only eight cases were complainants offered the dwellings.189 Further, in those cases where builders were found to have practiced discrimination, they were reinstated into the program after only agreeing to offer the dwelling unit complained of. According to VA, in one case where discrimination was found and the builder refused to make the unit available, he was suspended from the program and remains suspended.190 In one other case the builder was suspended for 124 days and was reinstated after agreeing to sell to all persons without discrimination.191 This, of course, was precisely the agreement he originally had made and violated. Nevertheless, VA imposes no additional conditions upon builders found to have practiced racial discrimination.192 V. FEDERAL FINANCIAL VA and FHA were the dominant forces in the housing market during the early post-war years.193 In the last decade, however, the share of the mortgage market held by FHA and VA has diminished considerably. Most housing is financed through conventional mortgage loans held by commercial banks, mutual savings banks, and savings and loan associations. At the end of 1968, they held in the aggregate well over $200 billion in residential mortgage loans.194 Almost all of these institutions receive substantial Federal benefits and are subject to close Federal regulation and supervision by one or more Federal agencies. A. The Nature and Scope of Federal Supervision Just as banks and savings and loan associations are separate in nature and organization, 195 so their supervision and regulation are conducted separately. The supervisory pattern in each case can be likened to a three-block pyramid. 193 12 FHA, by contrast, requires an affirmative program that will give assurance of future nondiscrimination. 'For example, in 1954, the combined FHA and VA share of the market was 35.5 percent; in 1955, 41.1 percent; in 1956, 34.7 percent. Computations based on HHFA, 18 Ann. Rep. 383 (1964). 194 Commercial banks held $41 billion; mutual savings banks held $47 billion; and savings and loan associations held $120 billion. Data supplied by HUD. 196 As this Commission has observed, savings and loan associations, unlike banks, "accept no deposits, pay no interest, and possess no independent capital structure. Their entire capital . . . consists of funds from individuals in the form of 'share accounts.' 'Share owners' receive dividends on their shares, not interest on deposits, and constitute, in effect, the associations' stockholders, not depositors." 1961 Commission Report 32. Banks Nat'l Banks Member Banks Federal Reserve System FDIC-Insured Banks Savings and Loan Associations Fed. S. & L.'s FSLIC-Insured S. & L.'s Member S. & L.'s Federal Home Loan Bank System 1. COMMERCIAL AND MUTUAL SAVINGS BANKS With respect to banks, the upper block represents national banks, chartered and supervised by the Comptroller of the Currency. The middle block represents member banks of the Federal Reserve System, supervised by the Board of Governors of the Federal Reserve System. These are the 4,700 national banks, which are required by law to be Federal Reserve members,196 and more than 1,200 of the nearly 9,000 State-chartered banks which have joined voluntarily. The broad base of the pyramid represents banks whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). These consist of the nearly 6,000 member banks of the Federal Reserve System (both national and State-chartered), which are required by law to be FDIC-insured, 197 plus 7,500 State-chartered, non-Federal Reserve member commercial banks and 330 of the 500 mutual savings banks, which have voluntarily applied for and been granted the benefits of FDIC deposit insurance. 198 In all, 98 percent of the Nation's commercial banks are FDIC-insured. As of 1968, they held 99 percent ($500 billion) of all commercial bank resources. In addition, the 330 FDICinsured mutual savings banks held nearly 90 percent ($62 billion) of all mutual savings bank resources.199 Federal supervision over the banking community is thus carried on by three agencies: Comptroller of the Currency: national banks; Board of Governors of the Federal Reserve System: State-chartered member banks; Federal Deposit Insurance Corporation: Statechartered, nonmember insured commercial and mutual savings banks. FDIC, however, has jurisdiction over institutions in the first two categories, national banks and State-chartered member banks, as well as those in the third, State-chartered, nonmember insured banks.200 In fact, if FDIC should terminate the insurance of a bank that also is a member of the Federal Reserve System, the Board of Governors is required, in turn, to terminate that institution's membership in the Federal While FDIC theoretically includes within its jurisdiction banks in all three categories, in fact, each of the three agencies, through the important process of bank examination, maintains close supervision over the banks within its supervisory authority. Thus national banks are examined by the Comptroller of the Currency; State-chartered member banks are examined by the Board of Governors of the Federal Reserve System; and State-chartered, nonmember insured banks are examined by the Federal Deposit Insurance Corporation. 2. SAVINGS AND LOAN ASSOCIATIONS With respect to savings and loan associations, whose principal investments are home mortgages, the upper block represents Federal savings and loan associations, chartered and supervised by the Federal Home Loan Bank Board (FHLBB). The middle block represents savings and loan associations whose accounts are insured by the Federal Savings and Loan Insurance Corporation (FSLIC), which is operated under the direction of the FHLBB.204 These consist of all 2,000 Federal savings and loan associations, which are required by law to be FSLIC-insured,205 and 2,400 of the 3,900 State-chartered savings and loan associations, which have voluntarily applied for and been guaranteed the benefits of FSLIC insurance of accounts. The broad base of the savings and loan pyramid represents associations which are members of the Federal Home Loan Board System (FHLBS). These consist of all 4,400 FSLIC-insured associations (Federal savings and loan associations are required by law to be members of the FHLBS; 206 State-chartered FSLIC insured associations are not required to be FHLBS members, but all nonetheless are) plus nearly 400 noninsured associations. In all, 80 percent of the Nation's savings and loan associations are FHLBS members. They hold 98 percent ($150 billion) of all savings and loan resources.2 207 Unlike Federal supervision of the banking community, there is a concentration of Federal authority over savings and loan associations. The three functions carried out by three separate banking agencies are consolidated in a single agency-the FHLBB-with respect to savings and loan associations. As in the case of banking agencies, the FHLBB is authorized to take action, including termination of FSLIC insurance and the institution of cease and desist proceedings when a member savings and loan association violates any applicable law, regulation, or order.208 B. Civil Rights Roles of Mortgage Because nearly all housing is acquired through mortgage credit, mortgage lending institutions necessarily play a key role in determining the range of housing choice. Their role with respect to housing opportunities for minority group members is particularly crucial. For example, as this Commission was told some years ago: "Banks dictate where the Negroes can live." 209 In its 1961 Report on Housing, the Commission concluded that mortgage lending institutions "are a major factor in the denial of equal housing opportunity." 210 There are a variety of ways in which mortgage lending institutions can prove a formidable barrier to minority group members in their search for housing. They may deny mortgage loans to minority group members, either generally or for houses in nonminority areas. Second, they may "red-line" areas in which minority group families are heavily concentrated and refuse to make loans in these areas to all house seekers, minority and majority group. Third, they may offer loans to minority group members under more stringent terms than for members of the majority group by imposing higher down payments, higher interest rates, lower appraisal values, and higher credit standards. All of these practices are prohibited under Title VIII of the Civil Rights Act of 1968. Many are difficult to detect, however, in that they can be rationalized on grounds of credit judgment. The agencies which supervise mortgage lending institutions traditionally have shied away from substituting their judgment for that of the lending institutions for purposes of critizing them for loans they have chosen not to make. Rather, the agencies have confined themselves to critizing lending institutions for loans they have made which, for credit reasons or other reasons, should not have been made. Although individual cases of discrimination by mortgage lending institutions may be difficult to prove, patterns or practices of such discrimination are not. If the institutions are required to maintain adequate records on all mortgage loan applications, not merely those which have been approved, examiners would have little difficulty in uncovering patterns or practices of discrimination, and appropriate corrective action could be taken. Thus the supervisory agencies could play a key role in assuring that the Nation's mortgage lending community serves to promote the cause of equal housing opportunity. It is a role they have been reluctant to assume. C. Past Civil Rights Activities In April 1961, this Commission, in preparation for an earlier report on Federal policy concerning housing and civil rights, sent detailed letters of inquiry to each of the three banking agencies and the FHLBB to determine what activities these agencies were conducting or planned to conduct to prevent discrimination in mortgage lending by the institutions they supervise. At the time, no Federal law had been enacted dealing with discrimination in housing or mortgage financing. Executive Order 11063 was not issued until a year and a half later. Of the four agencies, the FHLBB was the only one that could point to any positive action to prevent discrimination. Joseph P. McMurray then Chairman, informed the Commission that on June 1, 1961, the In response to a further inquiry from the Commission concerning the Board's plans for implementing this policy, Mr. McMurray replied: All of the Board's examiners, who examine institutions over which the Board has supervisory authority, have also been advised of the June 1 resolution for their guidance in the examination of such institutions. If in the examination of these institutions our examiners find that there is discrimination against borrowers solely because of race, color, or creed, they will report the facts and such supervisory action as is feasible will thereupon be taken to effect a discontinuance of the practice." 212 None of the three banking agencies gave any indication of adopting a similar policy. Two of the three agencies (Federal Reserve and Federal Deposit Insurance Corporation) disclaimed any legal authority to promulgate a requirement against discrimination in mortgage lending, and all three expressed reservations as to the desirability of pursuing such a course of action.213 Their reservations centered about two points: the nature of the regulation required to effect a policy of nondiscrimination; and the belief that race, color, or creed might affect the economic value of property.214 In the 7 years that followed, the situation remained static. No action was taken by the three banking agencies and the policy statement of the FHLBB proved to be little more than a paper requirement. No procedures were established that would permit the Board's examiners to discover instances of discrimination, nor were member savings and loan associations required to keep records by race and ethnicity which would facilitate such discoveries by examiners.215 D. Enactment of Title VIII and Its Section 805 of the Civil Rights Act of 1968 provided that as of January 1, 1969, discrimination in mortgage lending was prohibited. On June 11, 1968, the Commission forwarded to the four agencies a memorandum from its General Counsel pointing out that on January 1, 1969, when section 805 went into effect, the agencies no longer would be free to ignore problems of racial discrimination in mortgage lending, but would be under a legal obligation to take action to eliminate it.216 The Commission also argued that the agencies were authorized not only to prevent discrimination by the lending institutions they supervise, but to require these institutions to impose nondiscrimination requirements on builders and developers with whom they had financial dealings.217 In view of the enforcement weaknesses in Title VIII, such actions by the regulatory agencies would be of substantial help in assuring compliance.218 In July 1968, the FHLBB sent a letter to all member savings and loan associations, describing the requirements of section 805 and calling attention to the sanctions that could be imposed for violation of the prohibition against discrimination in mortgage lending.219 Thus the FHLBB again was the first of the four Federal financial regulatory agencies to act affirmatively in the cause of equal opportunity in mortgage lending.220 Nothing, however, was done with respect to the second Commission suggestion-to require the lending institutions to impose nondiscrimination requirements on builders and developers. Beginning in August 1968, HUD initiated |