There are not a lot of changes with Fair Lending right now, but the topic is red hot. Both HUD and the Department of Justice have taken recent action, and much more is coming.
On December 21, 2010 the U.S. Department of Housing and Urban Development (HUD), the Metropolitan St. Louis Equal Housing Opportunity Council (EHOC), and First National Bank of St. Louis entered into an agreement that requires the bank to invest more than $2.5 million over four years in St. Louis City, North St. Louis County, and St. Clair County, Illinois.
The agreement comes after HUD investigated and conciliated a fair housing complaint that was filed by EHOC, a fair housing organization, alleging that the Bank failed to locate branches and provide banking services in African-American neighborhoods.
Under the agreement, First National Bank of St. Louis will finance the construction of rental housing and community development projects in African-American neighborhoods, offer affordable mortgages, and promote consumer financial literacy education. The agreement also calls for the bank to conduct the following activities in St. Louis City, North St. Louis County, and Northwest St. Clair County:
Open a new bank branch in a majority African-American Census tract;
Provide $2 million in community development loans and investments;
Fund a Special Financing Program with $500,000 to provide mortgage rate discounts, down payment assistance, and closing cost assistance;
Make available Spanish language services in all branches, particularly in loan negotiations;
Increase its marketing, advertising, and outreach activities;
Invest $100,000 to provide credit counseling and financial literacy training to residents;
Offer residents free checking accounts with no fees or minimum balance; and
Provide $100,000 for fair housing and community reinvestment activities.
On December 8, 2010 the U.S. Department of Housing and Urban Development announced it is launching multiple investigations into the practices of certain mortgage lenders to determine if their home loan policies illegally deny qualified African American and Latino borrowers access to credit.
The investigations are in response to 22 complaints the National Community Reinvestment Coalition (NCRC) filed with HUD alleging that the loan activities of the mortgage originators showed that their home lending practices deny FHA- insured loans to African Americans and Latinos with credit scores as high as 640. Federal Housing Administration (FHA) guidelines allow mortgages to borrowers with credit scores above 580, provided the borrowers have down payments equaling 3.5 percent of the loan amount, or above 500, provided the borrowers have down payments equaling 10 percent of the loan amount.
Prior to the recent downturn in the economy, FHA-insured mortgages comprised less than three percent of new home loans. Since the economic crisis, FHA and the Government-Sponsored Enterprises have insured or guaranteed nearly 95 percent of new mortgage loans being originated. By the end of 2008, almost half of new home purchase loans and one quarter of new refinance loans were FHA or Veterans Administration (VA) insured.
DEPARTMENT OF JUSTICE
On December 9, 2010, the Department of Justice filed a fair lending complaint and proposed consent order in United States v. PrimeLending. The complaint alleges that the defendant violated the Fair Housing Act and the Equal Credit Opportunity Act when it charged African-American borrowers higher annual percentage rates of interest between 2006 and 2009 for prime fixed-rate home loans and for home loans guaranteed by the Federal Housing Administration and Department of Veterans Affairs than it charged to similarly-situated white borrowers.
The defendant, a national mortgage lender with 168 offices in 32 states, became one of the nation’s 20 largest FHA lenders by 2009. PrimeLending did not have monitoring in place to ensure that it complied with the fair lending laws, even as it grew to originate more than $5.5 billion in loans per year.
The complaint alleges that PrimeLending’s policy of giving its employees wide discretion to increase their commissions by adding “overages” to loans resulted in the alleged discrimination. The proposed consent order, which still must be approved by the court, requires the defendants to pay up to $2 million to the alleged victims of discrimination and to have in place loan pricing policies, monitoring and employee training that ensure discrimination does not occur in the future. This case resulted from a referral by the Board of Governors of the Federal Reserve.
The actions discussed above are just a small sampling of the fair lending enforcement activities under way. Watch for much more in the coming months.
But don’t just sit around watching bad things happen to your peers. Get busy. This is the time for serious self analysis. Do your own fair lending review or bring in a consultant to review your lending activity.
Fair lending has not been this hot in the last 10 years.