Decatur Federal: "We Did Not Believe We Were a Target." (Department of Justice Case against Decatur Federal Savings & Loan Association, Decatur, Georgia)

Article excerpt

"Decatur Federal is not the Darth Vader of the lending business," Marian Mackle told bankers during ABA's National Retail Management Conference in April. "We were a pretty good institution until the Department of Justice got through with us."

What happened to Decatur, the first target of Justice's fair-lending campaign, could happen to you, said Mackle, who was senior vice-president for risk management at Decatur Federal Savings and Loan Association, Atlanta, during its four-year investigation by the Department of Justice. Now she is executive vice-president of Nova Financial Corp., Atlanta, a provider of outsourcing services to banks.

No warnings

For one thing, the institution received no hints of trouble before or during Justice's investigation.

"Decatur always enjoyed a good reputation with our regulators," Mackle said. "I can say that because 1 worked for the Office of Thrift Supervision before I joined the bank." Decatur never received a discrimination complaint from a regulatory agency, and the Department of Justice never received a discrimination complaint about the thrift.

The S&L was doing the right fair-lending things--it had a second review program for denied mortgage applications, it sponsored an education program for first-time home buyers and credit seminars, and it had a number of fair-lending and CRA outreach programs. It was a member of the Atlanta Mortgage Consortium; it participated in affordable housing programs sponsored by the Federal Home Loan Bank of Atlanta, a state program that renovated homes in impoverished or minority areas, and other housing and mortgage programs.

Decatur's disparity ratio was at about the middle of the pack of metropolitan-area Atlanta lenders.

So why was Decatur chosen? Mackle's guess was that Decatur, the largest residential mortgage lender in Atlanta, was the only institution that had enough mortgage applications from African-American people to render a sampling valid.

Mackle pointed out that Justice is no longer limiting its cases to large, high-profile lenders; $18 million-assets Blackpipe State Bank, Martin, S.D. is a target, for example.

The search for a test case was prompted by the "Color of Money" articles the Atlanta Journal- Constitution published in I988 that accused banks of redlining. The following year, Justice sent letters to 64 Atlanta lenders asking for voluminous information on CRA activities and lending activities.

"They ultimately lost a lot of this information and had to come back and ask for it again," Mackle noted.

Justice made many more requests for information and lengthy visits to Decatur over the next three years. In 1991 it microfilmed 6,000 loan files. "You should have seen what our loan files looked like after they left," said Mackle.

The DOJ hired an econometrician to feed the documents into an econometric model that analyzed the bank's lending decisions. …