New York Attorney General Eliot Spitzer has fired his latest salvo, launching a preliminary probe into mortgage lending practices at eight major banks in the state, including HSBC Bank USA.
The state's top cop sent letters earlier this month to the banks, asking for mortgage lending data under the federal Home Mortgage Disclosure Act, as well as other information, according to a person familiar with the investigation.
Investigators are trying to determine how the banks price their loans, and if fees and interest rates are being applied fairly, or whether there's racial discrimination.
Besides HSBC, the lenders that received the letters include Citigroup, Bank of America Corp., Wells Fargo & Co., Countrywide Financial Corp. and Norfolk Mortgage, which operates downstate. The person said the banks in question have higher levels of so-called "subprime" lending -- loans to borrowers with bad credit, usually at higher interest rates. Mortgage brokers are not being targeted right now.
Spitzer spokeswoman Juanita Scarlett confirmed the existence of the investigation. "We're in the very early stages," she said.
So far, the banks are cooperating, with two of them already having sent data to the state, the person close to the investigation said. Spitzer is not working with any other federal or state agencies on the probe, which is being conducted by his civil rights bureau.
HSBC spokeswoman Kathleen Rizzo Young confirmed that the bank received the request and "we're complying as we would for any data."
Citigroup spokesman Robert Julavits said the bank initiated contact with Spitzer's office, meeting with investigators in March to discuss the HMDA data before it was publicly available. The bank took similar steps with other regulators and community groups.
Bank of America said it has not received an inquiry, while Wells Fargo confirmed receiving the request. Countrywide declined to comment, other than saying it would cooperate.
The new query is the latest challenge by Spitzer to the financial services industry, which has already seen him lead nationwide investigations into the investment banking, mutual fund and insurance industries. Those led to billions of dollars in fines and settlements, resignations of chief executives and other top officers, arrests and prosecutions of others, and wholesale changes to business practices.
It's also the latest examination of whether banks and mortgage companies are engaging in "predatory lending" -- high-cost loans with burdensome terms. Critics say such loans take advantage of unsophisticated, elderly and low-income borrowers and leave them trapped in an endless cycle of debt.
Citigroup already agreed in 2002 to pay $215 million to settle allegations by the Federal Trade Commission that Associates First Capital Corp. -- which Citi bought in 2000 -- had engaged in predatory lending. Associates' rival Household International -- acquired by HSBC Holdings Plc in 2003 -- paid $484 million in 2002 to settle similar charges by all 50 states in the largest consumer settlement ever.
The new inquiry stems from freshly released data under the Home Mortgage Disclosure Act, or HMDA. That's a 1975 law that requires banks and mortgage companies to report a host of data about their lending, including applications, approvals, and rejections by race, gender and income.
The data is intended to help the public determine if lenders are meeting their communities' credit needs and help regulators enforce fair lending laws. Beginning this year, lenders were also required to report the pricing of certain higher-cost loans.
The data became available directly from the banks upon request on March 31, and will be available over the Web this summer. But an early examination of the data by Spitzer's office found, among other things, that African-American borrowers at some banks were being charged rates four times that of other borrowers, the person said.
"The numbers that we saw are pretty atrocious, so that's what spurred our investigation," said the person familiar with the investigation. "We're just trying to figure out what's going on, if the civil rights of some borrowers are being violated."
John Taylor, president and chief executive of the National Community Reinvestment Coalition, a community advocacy group, said the investigation isn't surprising.
"I don't think by any stretch the data proves any discrimination, but it clearly raises the profile of where there may be problems with discrimination," he said.
But Spitzer may face a challenge from federal regulators over his latest move. Last year, the Office of the Comptroller of the Currency, which regulates national banks, asserted its authority over all activities and most investigations over its banks, effectively telling state regulators to stay out. Spitzer, as well as lawmakers and investigators in other states, have criticized the agency's actions, but have not won relief.