Orders issued under Bank Holding Company Act

Federal Reserve Bulletin,  Summer, 2004  by Robert DeV. Frierson

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Although the HMDA data may reflect certain disparities in the rates of loan application, originations, and denials among members of different racial groups and persons with different income levels in certain local areas, the HMDA data generally do not indicate that JP Morgan and Bank One Corporation are excluding any race, income segment of the population, or geographic area on a prohibited basis. The Board nevertheless is concerned when HMDA data for an institution indicate disparities in lending and believes that all banks are obligated to ensure that their lending practices are based on criteria that ensure not only safe and sound lending, but also equal access to credit by creditworthy applicants regardless of their race or income level. The Board recognizes, however, that HMDA data alone provide an incomplete measure of an institution's lending in its community because these data cover only a few categories of housing-related lending. HMDA data, moreover, provide only limited information about the covered loans. (62) HMDA data, therefore, have limitations that make them an inadequate basis, absent other information, for concluding that an institution has not assisted adequately in meeting its community's credit needs or has engaged in illegal lending discrimination.

Because of the limitations of HMDA data, the Board has considered these data carefully in light of other information, including examination reports that provide an on-site evaluation of compliance by the subsidiary depository institutions of JP Morgan and Bank One Corporation with fair lending laws. Examiners noted no fair lending law issues or concerns in the CRA performance evaluations of the depository institutions controlled by JP Morgan or Bank One Corporation.

The record also indicates that JP Morgan and Bank One Corporation have taken steps to ensure compliance with fair lending laws. Both organizations have instituted corporate-wide policies and procedures to help ensure compliance with all fair lending and other consumer protection laws and regulations. These programs include le reviews for compliance with federal and state fair lending and other consumer protection rules and regulations, fair lending policies, and testing the integrity of HMDA data. JP Morgan and Bank One Corporation also conduct regular compliance and fair lending training for their employees. JP Morgan has stated that it is reviewing the compliance programs of Bank One Corporation and that, on consummation of the transaction, the combined organization will adopt the best practices of both JP Morgan and Bank One Corporation.

The Board also has considered the HMDA data in light of the programs described above and the overall performance records of the subsidiary banks of JP Morgan and Bank One Corporation under the CRA. These established efforts demonstrate that the banks are actively helping to meet the credit needs of their entire communities.

F. Subprime Lending and Abusive Lending Practices

As previously noted, a number of commenters cited concerns about the subprime mortgage lending and related activities of JP Morgan and Bank One Corporation. These commenters expressed concern that both organizations originate subprime loans and other alternative loan products and criticized the role of JP Morgan in purchasing subprime loans from other lenders, securitizing packages of subprime loans, purchasing securitized packages of subprime loans, and servicing or acting as trustee of record for subprime loan pools. Commenters generally argued that JP Morgan purchased subprime loans and securitized packages of subprime loans without performing adequate due diligence to screen for "predatory" loans. Other commenters expressed concern that JP Morgan and Bank One Corporation were financing unaffiliated lenders who provided subprime mortgage loans and alternative products such as payday loans.