As James Bovard reports in the American Spectator, of the three pairs who visited Columbia National offices, the first two found no problems, but the third uncovered evidence of discrimination: the white tester spent an hour with a female loan officer, while a male Hispanic loan tester spent only 20 minutes with a male loan officer. According to the commission's report, the loan officer who saw the Hispanic shook his hand, then "excused himself to use the restroom. About two minutes later, he returned from the restroom and the interview began." The report concluded that there were no "extenuating circumstances" to justify such an interruption, even though the white male tester had to wait a full five minutes to see his loan officer, and the Hispanic's loan officer did seek to pre-qualify him for a loan. HUD later admitted that the two testers even gave different information, the Hispanic tester claiming less personal savings than the white tester. Neither would provide his Social Security number or an address, nor did either allow the loan officer to pull his credit report, unusual behavior for any legitimate loan applicant. The essence of the settlement hinged on the 40-minute differential, the result being that the company was penalized over $150 million per minute.
Columbia National CEO Dave Gallitano said he had received threats from
a HUD "equal opportunity conciliator" that if his company did not
sign the settlement, "the alternative was [for HUD] to come in and
audit us to death." In the agreement itself, the firm did not have to
admit to any actual wrongdoing, and the Human Relations
Commission waived the right to take any further action against the
company. The only direct payment consisted of a $5,000 pledge to the
commission to "further fair housing initiatives through education,
outreach and testing." While the firm made an annual commitment to
make certain levels of loans to minority applicants, the agreement
contained no penalty clause if they didn't. Gallitano insists his
company was being villainized for reasons of political advantage.
"Clinton gets on national TV and makes us sound like bigots. This is
the kind of statement from a person in his position that could put us
out of business." Indeed, the White House/HUD press release
announcing the settlement made much of the fact that the company made
no loans to blacks or Hispanics in ten states—states in which the
firm had no offices and did almost no business at all.
In another case, HUD funded a Richmond, Virginia activist group, Housing Opportunities Made Equal (HOME), to send testers to prove that the Nationwide Insurance Co. quoted different rates to homeowners in black and white neighborhoods. A jury convicted Nationwide and ordered the company to pay $100 million in damages, even though the trial revealed that the testers asked for rate quotes on homes of much different age, overall value, and neighborhood crime rate, which are all relevant variables. Nevertheless, HUD Secretary Andrew Cuomo hailed the verdict and warned that it sent companies a message "loud and clear that it is now their turn to pay a terrible price if they continue to discriminate."
But an Urban Institute study found no evidence of racial bias in the insurance markets of New York and Phoenix. Though HUD granted $650,000 for the study up until 1995, it declined to release the report, and the Urban Institute later had to publish it on its own. Many insurance executives believe the report was suppressed because its conclusions were not politically useful. A 1995 Federal Reserve Board study of over 200,000 mortgage loans also found no evidence of bias, with apparent racial disparities in lending rates easily explained by corresponding disparities in default rates.
