By Ameet Sachdev
Tribune staff reporter
Published April 29,
2005

A northwest
suburban-based mortgage lender has turned over information about its loan
pricing to New
York’s attorney general as part of his probe into
possible discriminatory lending practices.

HSBC Holdings PLC said
Thursday it was complying with a request to provide data about its loans in
New York state
under the Home Mortgage Disclosure Act, known as HMDA. Financial institutions
each year are required to file reports with the federal government detailing
their lending practices, including where they make loans and rejection rates
according to race.

New York Atty. Gen. Eliot Spitzer’s investigation,
which has just begun, is looking at whether minorities, the elderly and other
groups were unfairly targeted to pay higher interest rates or excessive fees on
mortgage loans.

HSBC of London in 2003 acquired Prospect Heights-based
Household International Inc., one of the nation’s largest “subprime” lenders,
which means it serves borrowers with poor credit ratings. HSBC still has
Household’s consumer-lending businesses, HFC and Beneficial.

HSBC was one
of several banks and mortgage lenders that received letters from Spitzer’s
office requesting information, said a spokeswoman for his office. She declined
to identify the other lenders, but officials of Citigroup Inc. and Wells Fargo
& Co. told the Associated Press they had received letters.

“We are
trying to determine if loans are being priced fairly across the spectrum of
borrowers and whether or not they are justified by legitimate business
practices,” said Juanita Scarlett, a spokeswoman for Spitzer’s
office.

Subprime lenders have been targets of many complaints in recent
years of allegedly misleading or predatory practices. Private lawsuits and state
regulators have accused the companies of misleading borrowers on what their
mortgage rates would be and hiding a host of huge fees in closing
documents.

In 2003 Household agreed to pay nearly $100 million to settle
several class-action suits. The year before, the company reached a $484 million
settlement with attorneys general in 19 states, including Illinois, and agreed to
stop a number of questionable practices.

Spitzer’s inquiry will bring
renewed attention to subprime loan practices. The investigation was first
reported in the Wall Street Journal. His previous probes have spurred major
reforms at Wall Street investment banks, mutual fund companies and insurance
brokers.

“A high-profile case like this will bring to light other factors
involved in pricing and bring national attention to this issue,” said Tom
Feltner, communications and development associate at the Chicago-based Woodstock
Institute.

The economic development think tank has done studies of
mortgage lending in the six-county Chicago region. In its analysis of 2004 Home
Mortgage Disclosure Act data to be released next week, the institute found that
African-American and Hispanic borrowers were more likely to receive subprime
loans regardless of income.

In the Chicago area, less than 15 percent of
conventional mortgages were subprime. However, 36 percent of African-American
borrowers received subprime loans, as did 20 percent of Hispanic borrowers, the
study said.

The Woodstock Institute analyzed data from 17 of the area’s
top 20 mortgage lenders.

The banking industry has argued that HMDA data
can be misleading because it does not take into account all the variables that a
financial institution uses to price a loan, including credit scores, the quality
of the home, the size of the down payment or the debt-to-income ratios of
buyers.

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