Justice Department Announces Three Fair Lending Actions

Recently, the DOJ released information regarding three fair lending actions, all three of which included allegations related to wholesale lending programs. On September 27, the DOJ announced separate actions—one against a Wisconsin bank and the other against a nationwide wholesale lender—in which the DOJ alleged that the lenders engaged in a pattern or practice of discrimination on the basis of race and national origin in their wholesale mortgage businesses. The DOJ charged that, during 2007 and 2008, the bank violated the Fair Housing Act and ECOA by granting its mortgage brokers discretion to vary their fees and thus alter the loan price based on factors other than a borrower’s objective credit-related factors, which allegedly resulted in African-American and Hispanic borrowers paying more than non-Hispanic white borrowers for home mortgage loans. The bank denies the allegations but entered a consent order pursuant to which it will pay $687,000 to wholesale mortgage borrowers who were subject to the alleged discrimination. The allegations originated from an FDIC referral to the DOJ.

The DOJ charged the California-based wholesale lender with violations of the Fair Housing Act and ECOA, alleging that over a four-year period, the lender’s practice of granting its mortgage brokers discretion to set the amount of broker fees charged to individual borrowers, unrelated to an applicant’s credit risk characteristics, resulted in African-American and Hispanic borrowers paying more than non-Hispanic white borrowers for home mortgage loans. The lender did not admit the allegations, but agreed to enter a consent order to avoid litigation. Pursuant to that order the lender will pay $3 million to allegedly harmed borrowers. The order also requires the lender to take other actions including establishing race- and national origin-neutral standards for the assessment of broker fees and monitoring its wholesale mortgage loans for potential disparities based on race and national origin.

Finally, on September 30, the DOJ announced that a national bank agreed to resolve certain legacy fair lending claims against a thrift it acquired several years ago, which the bank and the OCC identified as part of the acquisition review. Based on its own investigation following the OCC referral, the DOJ alleged that, between 2006 and 2009, the thrift allowed employees in its retail lending operation to vary interest rates and fees, and allowed third-party brokers as part of its wholesale lending program to do the same, allegedly resulting in disparities between the rates, fees, and costs paid by non-white borrowers compared to similarly-situated white borrowers. The bank, which was not itself subject to the DOJ’s allegations, agreed to pay $2.85 million to approximately 3,100 allegedly harmed borrowers to resolve the legacy claims and avoid litigation.

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Nevada Mortgage Regulator Clarifies Wholesale Lender Licensing Requirements

On August 20, the Nevada Division of Mortgage Lending issued a memorandum clarifying licensing requirements for wholesale lenders under the Nevada Mortgage Brokers and Mortgage Agents Act. The Act prohibits anyone from offering or providing mortgage-broker services—such as making mortgage loans or buying and selling mortgage notes—without first obtaining a license. The memorandum states that a wholesale lender must be licensed as a broker if (i) the wholesale lender closes and funds a mortgage in its own name as the lender of record, or (ii) buys a mortgage loan from a mortgage broker after closing. A wholesale lender need not be licensed if it only provides a funding source for a licensed or exempt mortgage broker to close and fund a loan as the lender of record. After closing, the lender of record may assign a closed or funded loan to the wholesale lender. The Division will allow until October 1, 2012 for wholesale lenders to apply for a license under this interpretation, and it will start enforcing the licensing requirement on January 1, 2013.

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DOJ Finalizes Settlement Over Bank’s Mortgage Lending Practices

On July 12, the DOJ announced a settlement with a national bank to resolve allegations that the bank engaged in a pattern or practice of discrimination against qualified African-American and Hispanic borrowers in its mortgage lending from 2004 through 2009. Pursuant to a consent decree awaiting approval by the U.S. District Court for the District of Columbia, the bank will pay $125 million in compensation to wholesale borrowers who, the DOJ alleges, were steered into subprime mortgages or who paid higher fees and rates because of their race or national origin, and $50 million in direct down payment assistance to borrowers in communities identified by the DOJ as having large numbers of discrimination victims. In addition to the combined $175 million payment, the bank also agreed to separately compensate individual African-American and Hispanic borrowers identified through an internal review of its retail mortgage lending operations. Finally, the agreement will subject the bank to other compliance, training, recordkeeping, and monitoring requirements. In addition to resolving the federal allegations, the consent decree resolves a fair lending suit based on similar allegations brought by the Illinois Attorney General. The DOJ’s Fair Lending Unit in the Civil Rights Division’s Housing and Civil Enforcement Section worked with the U.S. Attorney’s Office for the District of Columbia and the Illinois Attorney General to obtain this agreement. The Fair Lending unit was established in 2010, and since that time has filed a complaint in or resolved 19 matters, a pace far surpassing that of previous years. This matter also is the most recent to be concluded under President Obama’s Financial Fraud Enforcement Task Force, an interagency effort to investigate and prosecute financial crimes.

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