UPDATE: US Housing Officials To Probe Mortgage Discrimination Allegations

The Obama administration said Wednesday it would investigate a consumer group's allegations that lenders violated federal standards by failing to offer home loans to minority borrowers.

The Department of Housing and Urban Development said it would launch the inquiry in response to complaints filed earlier in the day by the Washington-based National Community Reinvestment Coalition.

The consumer group filed 22 complaints with HUD, alleging that lenders discriminated against black and Latino borrowers by imposing overly strict qualification rules for loans guaranteed by the Federal Housing Administration.

The FHA is a federal agency that insures home loans for borrowers with down payments as low as 3.5%. The agency has become the primary source of loans for first-time homebuyers after the subprime lending market went bust.

The FHA allows credit scores as low as 580 out of a possible 850, but some lenders have imposed tougher standards.

John Trasvina, an assistant HUD secretary, said the agency "will take appropriate action against any lender found to be engaging in discriminatory practices."

The consumer group said it filed complaints against lenders including Bank of the West, owned by French bank BNP Paribas SA (BNPQY, BNP.FR), MetLife Inc.'s (MET) MetLife Bank NA and PHH Mortgage, a unit of PHH Corp. (PHH).

The group said it conducted "mystery shopping" tests on the top FHA-approved lenders. Among those tested, nearly two thirds would not consider consumers with credit scores below 620, the group said.

Banks are "cutting qualified borrowers off from accessing credit, and in doing so, causing harm to their ability to prosper," said John Taylor, the group's chief executive.

A group representing bankers, however, said lenders are within their rights to have credit standards that are tighter than those required by FHA. Lenders that do so "are exercising prudent judgment and protecting borrowers, neighborhoods, the FHA and U.S. taxpayers from another round of excessively high defaults and foreclosures," said Glen Corso, managing director of the Alexandria, Va.-based Community Mortgage Banking Project.

Jim Cole, a spokesman for Bank of the West, said the bank has approved some FHA borrowers with credit scores below 600 "even in the current difficult housing market."

-By Alan Zibel, Dow Jones Newswires; 202-862-9263; alan.zibel@dowjones.com

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