Transcript Slide 1

DOJ Fair Lending Basics
Statutes: Fair Housing Act
Equal Credit Opportunity Act
Servicemembers Civil Relief Act
Sources of Cases: Referrals
Complaints
DOJ-initiated matters
DOJ Fair Lending Basics
Types of Credit:
Mortgage and other housing-related
Auto, credit cards and other consumer
Small Business
Types of Fair Lending Cases
Pricing/Steering
Redlining
Underwriting
Servicing
Reverse Redlining/Predatory Lending
(if targeted at a protected class)
Recent FHA Fair Lending Cases
U.S. v. AIG FSB and Wilmington Finance (2010)
broker fee pricing (mortgages)
U.S. v. First United Security Bank (2009)
pricing and redlining (mortgages and small
business loans)
U.S. v. First Lowndes Bank (2008)
pricing (mobile home loans)
United States v. AIG FSB & Wilmington
Finance, Inc. (2010)
Complaint alleged that African-American
borrowers were charged higher fees for
wholesale loans than white customers
in violation of ECOA and FHA
Loans were underwritten and funded by
defendant lenders; arranged by brokers
United States v. AIG FSB & Wilmington
Finance, Inc. (2010)
Holds lenders accountable for racially
discriminatory broker fees
Lender is creditor under ECOA when
“regularly participates in a credit
decision, including setting the terms of
the credit”
United States v. AIG FSB & Wilmington
Finance, Inc. (2010)
Allegations included:
• Significantly higher fees for thousands of
African-American borrowers, not
explained by non-racial factors
• Broad, unmonitored broker discretion in
setting fees, with no formal guidelines
other than for YSPs
Based on referral from OTS
United States v. AIG FSB & Wilmington
Finance, Inc. (2010)
Consent order filed with complaint includes:
• non-discrimination injunction
• $6.1 million fund for victim damages
• minimum $1 million for consumer
education
• new broker fee standards and
monitoring if either lender re-enters
wholesale business
United States v. First United
Security Bank (2009)
Redlining claim:
alleged failure to provide lending
services to African-American areas
of west central Alabama
Pricing claim (referred by FDIC):
alleged bank charged significantly
higher rates to African-American
customers than similarly-situated
white customers
United States v. First United
Security Bank (2009)
Pricing claim:
• Identified by FDIC through analysis of
HMDA data
• Statistical analysis by FDIC found
pricing disparities in bank’s HMDA data
• FDIC & DOJ investigations obtained
additional data from the bank
e.g., credit score, loan characteristics
United States v. First United
Security Bank (2009)
Complaint alleges:
• FUSB charged African-American borrowers
higher interest rates on conventional, first-lien
refi loans than similarly situated white
borrowers
• Differences of approximately 62 basis points
were not explained by borrower or loan
characteristics and were statistically significant
United States v. First United
Security Bank (2009)
Redlining evidence included long term
pattern in majority African-American
counties and census tracts of:
• no branches
• little or no marketing
• exclusion from the bank’s three
separate CRA assessment areas
• extremely low proportion of loans
United States v. First United
Security Bank (2009)
Redlining claim:
• Evidence of low proportion of loans
in majority African-American counties
and census tracts developed from
HMDA analysis
• Used “market area” designated in
SEC 10K reports because AfricanAmerican areas were excluded from
bank’s CRA assessment areas & bank
operated outside of MSAs
United States v. First United
Security Bank (2009)
Complaint alleged that from 2004-2006:
• Bank made only 218 of its 1563 mortgage
loans (14%) in majority-minority
census tracts
• Comparable lenders made 31% of such
loans in majority-minority census tracts
(twice as many)
• This difference is statistically significant
United States v. First United
Security Bank (2009)
Complaint alleged that from 2004-2006:
• Bank made only 245 of its 2134 CRA
small business loans (11.5%) in
majority-minority census tracts
• All lenders made 21% of such loans in
majority minority census tracts
(almost twice as many)
• This difference is statistically significant
United States v. First United
Security Bank (2009)
Consent order filed with complaint includes:
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non-discrimination injunction
one new branch in a majority A-A area
revised credit policy
training requirements
affirmative outreach and marketing
revised CRA assessment areas
United States v. First United
Security Bank (2009)
Monetary relief:
• $500K in loan discount fund
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$110K for outreach
$55K damages for African-American
customers charged higher interest
rates
Reverse Redlining Investigations
Redlining by prime lenders left minority
areas exposed to possible “reverse
redlining” or targeting of subprime
loans to those areas
Several ongoing
Reverse Redlining Investigations
Investigations may focus on:
Disproportionate share of subprime loans
made to minorities
Specific marketing to minorities
Vulnerability of borrowers
Predatory nature of loans
Prime products targeted at whites; subprime
products targeted at minorities
Emerging Fair Lending Issues
Allegations of discrimination in:
• Mortgage servicing/loan modification
programs
• Loss mitigation programs
• Foreclosures
• “REO” (lender-owned) properties
• FHA lending
U.S. Department of Justice
Civil Rights Division
Housing and Civil Enforcement Section, NWB
www.usdoj.gov/fairhousing
Donna M. Murphy, Deputy Chief
(202) 514-1775
[email protected]