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HMDA and FHA Loan Data HUD FHEO National Policy ConferenceJuly 22, 2010

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DOJ Fair Lending Basics Statutes: Fair Housing Act Equal Credit Opportunity Act Servicemembers Civil Relief Act Servicemembers Civil Relief Act Sources of Cases: Referrals Complaints DOJ-initiated matters

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Types of Credit: Mortgage and other housing-related Auto, credit cards and other consumer Small Business DOJ Fair Lending Basics

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Types of Fair Lending Cases Pricing/SteeringRedliningUnderwritingServicing Reverse Redlining/Predatory Lending (if targeted at a protected class)

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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)

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Emerging Fair Lending Issues Allegations of discrimination in: Mortgage servicing/loan modification programsMortgage servicing/loan modification programs Loss mitigation programsLoss mitigation programs ForeclosuresForeclosures REO (lender-owned) propertiesREO (lender-owned) properties FHA lendingFHA lending

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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 donna.murphy@usdoj.gov