Types of Credit: Mortgage and other housing-related Auto,
credit cards and other consumer Small Business DOJ Fair Lending
Basics
Slide 4
Types of Fair Lending Cases
Pricing/SteeringRedliningUnderwritingServicing Reverse
Redlining/Predatory Lending (if targeted at a protected class)
Slide 5
Recent FHA Fair Lending Cases U.S. v. AIG FSB and Wilmington
Finance (2010) broker fee pricing (mortgages) 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) pricing (mobile
home loans)
Slide 6
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
Slide 7
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
Slide 8
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
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 Broad, unmonitored broker discretion in setting fees,
with no formal guidelines other than for YSPs Based on referral
from OTS
Slide 9
United States v. AIG FSB & Wilmington Finance, Inc. (2010)
Consent order filed with complaint includes: non-discrimination
injunctionnon-discrimination injunction $6.1 million fund for
victim damages $6.1 million fund for victim damages minimum $1
million for consumer educationminimum $1 million for consumer
education new broker fee standards and monitoring if either lender
re-enters wholesale businessnew broker fee standards and monitoring
if either lender re-enters wholesale business
Slide 10
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 white customers
Slide 11
United States v. First United Security Bank (2009) Pricing
claim: Identified by FDIC through analysis of HMDA data Identified
by FDIC through analysis of HMDA data Statistical analysis by FDIC
found pricing disparities in banks HMDA data Statistical analysis
by FDIC found pricing disparities in banks HMDA data FDIC & DOJ
investigations obtained additional data from the bank FDIC &
DOJ investigations obtained additional data from the bank e.g.,
credit score, loan characteristics
Slide 12
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 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 Differences of approximately 62
basis points were not explained by borrower or loan characteristics
and were statistically significant
Slide 13
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 no branches little or no
marketing little or no marketing exclusion from the banks three
exclusion from the banks three separate CRA assessment areas
extremely low proportion of loans extremely low proportion of
loans
Slide 14
Slide 15
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 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
African- American areas were excluded from banks CRA assessment
areas & bank operated outside of MSAs Used market area
designated in SEC 10K reports because African- American areas were
excluded from banks CRA assessment areas & bank operated
outside of MSAs
Slide 16
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 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) Comparable lenders
made 31% of such loans in majority-minority census tracts (twice as
many) This difference is statistically significant This difference
is statistically significant
Slide 17
Slide 18
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
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) All
lenders made 21% of such loans in majority minority census tracts
(almost twice as many) This difference is statistically significant
This difference is statistically significant
Slide 19
Slide 20
United States v. First United Security Bank (2009) Consent
order filed with complaint includes: non-discrimination
injunctionnon-discrimination injunction one new branch in a
majority A-A areaone new branch in a majority A-A area revised
credit policy revised credit policy training requirementstraining
requirements affirmative outreach and marketingaffirmative outreach
and marketing revised CRA assessment areasrevised CRA assessment
areas
Slide 21
United States v. First United Security Bank (2009) Monetary
relief: $500K in loan discount fund$500K in loan discount fund
$110K for outreach$110K for outreach $55K damages for
African-American$55K damages for African-American customers charged
higher interest rates
Slide 22
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
Slide 23
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
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]