Last fall the Justice Department (DOJ) promised it would “spare no resource” to ensure “vigorous” fair lending enforcement as part of its Combatting Redlining Initiative.
Now a Delaware-based mortgage company has settled a joint DOJ and Consumer Financial Protection Bureau (CFPB) redlining suit for $24.4 million—the second largest redlining settlement in DOJ history and the first against a non-bank lender.
What went wrong?
The CFPB and DOJ allege that the mortgage company, a subsidiary of Berkshire Hathaway, violated the Equal Credit Opportunity Act (ECOA) by actively avoided making loans and discouraging applicants in majority-minority neighborhoods in Philadelphia between at least 2015 and 2019. As a result, the company generated far fewer home loans and home loan applications from these neighborhoods than similarly situated lenders. (Peers generated two and a half times more applications and almost twice as many loans.)
Where did the mortgage company go wrong? The CFPB and DOJ allege the company failed majority-minority communities by:
- Locating nearly all its offices in majority-white neighborhoods (51 of its 53 offices)
- Failing to assign loan officers to solicit applications in majority-minority communities or train or incentivize its loan officers to lend in majority-minority areas.
- Hiring mostly white loan officers (64 of 68 loan officers were white)
- Concentrating its advertising in majority white neighborhoods (92 percent of campaigns targeted majority-white neighborhoods)
- Featuring only white consumers and loan officers in direct-mail marketing materials
- Using a third-party vendor that marketed properties mostly in majority-white areas (87.5 percent of listings)
- Failing to take disciplinary action against loan officers who used their work email accounts to send emails containing racial slurs and content
- Ignoring six fair lending analytics reports from third parties that identified fair lending problems
CFPB discovered mortgage company redlining during a fair lending exam
The CFPB uncovered the alleged redlining during a fair lending exam. It then referred the case to the DOJ, which worked with the attorneys general of Pennsylvania, New Jersey, and Delaware to prosecute. (Trident’s practices gained public attention in 2018 after an investigative journalism report, as HousingWire notes).
The cooperation among federal agencies and the states as part of the Combatting Redlining Initiative announced in fall 2021—a collaboration that will continue as U.S. Attorney Jacqueline Romero for the Eastern District of Pennsylvania emphasized in a press release about the settlement.
“I am pleased that my office could support the Attorney General’s Combatting Redlining Initiative through this resolution, and I look forward to our continued partnership with the Civil Rights Division,” she said.
In addition to the federal settlement, which includes $20.4 million to establish and market a program to provide credit in the redlined neighborhoods and a $4 million civil money penalty, the mortgage company also settled with the states and agreed to reimburse them for the cost of the investigation.
3 redlining enforcement takeaways for mortgage companies
- Redlining is a mortgage company problem too. Mortgage companies may think of redlining as a bank problem, not a mortgage company issue since mortgage companies are not subject to the federal Community Reinvestment Act (CRA). That view is short sited.
The alleged violation fell under ECOA—a law mortgage companies must comply with and that is receiving increased scrutiny as “part of a renewed effort by federal agencies to combat illegal redlining by mortgage lenders in violation of federal law,” the CFPB noted in a press release. - The DOJ and CFPB are teaming up with the states to enforce fair lending—and states have fair lending enforcement powers too. The CFPB is “increasing resources to state partners to regulate nonbank mortgage lenders,”CFPB Director Rohit Chopra said at a press conference announcing the settlement according to HousingWire.
Not only will states be working more closely with the DOJ and CFPB when pursuing redlining cases at mortgage companies, but some states—including Illinois and Massachusetts—have their own laws requiring mortgage companies to comply with state-level Community Reinvestment Act (CRA) requirements. New York’s CRA amended law, which will cover mortgage companies, is expected to take effect in the near future.
That means there will be even more eyes on mortgage companies' fair lending activities—and more tools to come down on violations.
Related: What Does the New Illinois CRA Law Mean for Mortgage Companies & Credit Unions?
- Make sure you analyze your fair lending data as part of your fair lending compliance program—and act on the results. Mortgage companies should analyze their HMDA data to uncover potential redlining and other fair lending violations. Ignoring your data (or the results of the analysis) is a terrible idea. HMDA data is public. That means it’s easy for journalists, public interest groups, and regulators to analyze your data.
If you’re not proactively analyzing your data, you could be blindsided by regulators, the public, or the press. It’s much better to know where your mortgage company stands and be able to demonstrate corrective action, if necessary.
Related: 7 Ways to Analyze Your Data for Redlining Compliance Risk (ncontracts.com)
Don’t make the mistake of thinking that your mortgage company doesn’t have to worry about fair lending. It’s an outdated view that can lead to big trouble and big fines. Now is the time to assess your fair lending compliance program to ensure your company is staying on top of fair lending compliance regulations.
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A Compliance Officer's "Night Before Christmas" (Original)
What Does the New Illinois CRA Law Mean for Mortgage Companies & Credit Unions?
