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$2.8M Redlining Settlement Impacts Community Banks

author Andy Barksdale
3 min read
Mar 9, 2016

Redlining is one of the hottest regulatory topics. A recent agreement between HUD and First Federal Bank of Kansas City is a signal that lenders must not ignore. Read on for more detail regarding the $2.8M settlement and the 5 redlining risks that should be explored.   

Redlining is arguably the hottest regulatory topics of late. Just last week, the U.S. Department of Housing and Urban Development (HUD) announced a $2.8 million agreement with First Federal Bank of Kansas City to resolve allegations of redlining.

From our perspective, clear trends are emerging in both the risk areas being evaluated by the regulators and the post-settlement “Fair Lending commitments” that have been agreed upon by financial institutions.

Redlining is defined is by the Federal Reserve as "the practice of denying a creditworthy applicant a loan for housing in a certain neighborhood even though the applicant may otherwise be eligible for the loan." The Fair Housing Act makes it unlawful for any person or other entity whose business includes residential real estate-related transactions to discriminate against any person because of race, gender or ethnicity.

First, we'll explore 10 themes that emerged from this most Redlining settlement agreement and then outline the 5 most important Redlining risks areas that can prepare your compliance department for redlining scrutiny.   

10 Themes Emerge in Recent Redlining Settlement

As part of the HUD-mediated conciliation agreement, the $350M Kansas City Bank agreed to a variety items. While the following individual requirements are specific to this agreement, the 10 larger themes highlighted by this settlement are fairly common in the industry. They include:

  1. Commitment to Originate Mortgage Loans in Specific Communities
    • $2,500,000 in mortgage loans in majority African American neighborhoods over a three-year period.
  2. Mortgage Subsidies
    • $75,000 fund in Discounts or Subsidies on home purchase loans on owner-occupied properties in majority African-American census tracts over a three-year period.
  3. Area Rehabilitation Donations
    • $105,000 loan pool ($35K CRA donation per year) to assist with the capitalization of a revolving loan pool to help rehabilitate vacant, blighted homes in distressed areas of Kansas City.
  4. Affirmative Marketing
    • $50,000 over three years for affirmative marketing and outreach to African-American communities in the Kansas City metropolitan area.
  5. Financial Education
    • $30,000 to support financial education targeting majority African American communities.
  6. Non-Profit Support for Community Reinvestment and Fair Lending
    • $50,000 to the two non-profit fair housing organizations who filed the complaints that sparked the agreement, to support their ongoing Fair Lending and community reinvestment work.
  7. Community Development Leader
    • Appoint a Community Development Leader who is at least 50 percent focused on the Bank’s service of low- and moderate-income communities and African-American neighborhoods.
  8. Branches/Distribution Locations
    • If the OCC approves a merger with Inter-State Federal Saving and Loan Association, the Bank will maintain two stand-alone, full-service branches located in low- and moderate-income tracts with majority African-American populations. The Bank will also maintain their current branch in the majority-minority census tract within Kansas City.
  9. Employee Training
    • All of the Bank’s employees must attend Fair Lending training.
  10. Ongoing Monitoring
    • The Bank has agreed to provide ongoing Monitoring and Reporting over the next three years.

TRUPOINT Viewpoint: The regulators continue to focus on Fair Lending, and redlining in particular, as witnessed by observing the recent settlements (e.g., First Federal Bank of Kansas City, Hudson City Savings Bank, Evans Bank and Eagle Bank).

More than ever before, banks should be exploring your redlining risk by evaluating your market area demographics, assessment area drawings, your distribution networks, your application and origination lending patterns, and your peer data. Stated again for emphasis, the regulators are judging your Fair Lending risk by exploring both your lending patterns and how your data compares to peers and/or geographic benchmarks.

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