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Mortgage Lawsuits News | Mortgage Litigation Index
Mortgage industry lawsuit news and mortgage litigation coverage. Stories about legal settlements, judgments and mortgage class actions.


Discrimination Litigation Gets Costly

Recent lawsuits related to lending discrimination

June 21, 2011

By SAM GARCIA MortgageDaily.com


portrait of Sam Garcia

Several lenders have forked over millions of dollars to settle allegations of discriminatory lending. The plaintiffs in the actions included the Department of Housing and Urban Development, the Department of Justice and the Federal Trade Commission. Wells Fargo & Co. was named as a defendant in three discrimination cases.

Citizens Republic Bancorp Inc. and Citizens Bank agreed to a $3.6 million settlement with the Justice Department over charges of alleged discrimination by a loan production office in a black Detroit neighborhood, a May 5 statement said. A partnership between Citizens and the City of Detroit will receive $1.6 million, while another $1.5 million will go towards a special financing program. An additional $505,000 will be used to fund exterior improvements and for customer outreach. In addition, a loan production office will be opened in a majority African-American area in Detroit.

The government filed its lawsuit against Citizens in U.S. District Court for the Eastern District of Michigan claiming violations of the Fair Housing Act and the Equal Credit Opportunity Act. The bank is accused of serving the needs of borrowers in white neighborhoods to a much greater degree than it served borrowers in predominantly black areas.

A total of $1.5 million in checks were mailed to 3,162 Hispanic borrowers who obtained a mortgage from Golden Empire Mortgage Inc., the FTC recently reported. The Bakersfield, Calif.-based lender, which the FTC sued along with owner Howard D. Koostra in U.S. District Court for the Central District of California, are accused of illegally charging Hispanic borrowers higher prices for mortgage loans than non-Hispanic white consumers.

As part of the settlement, Golden Empire will "establish and maintain a policy that restricts loan originators' pricing discretion, a fair lending monitoring program, a program to ensure the accuracy and completeness of their data, and employee training programs," the FTC said.

A $1.45 million settlement was announced Thursday between Midwest BankCentre and the Department of Justice. As part of the agreement, the bank will open a branch and invest around $1.5 million in majority-black areas of the St. Louis metropolitan area. Around $900,000 will be used to extend credit to blacks, $300,000 will go towards consumer education and credit repair programs and $250,000 will be used for customer outreach.

In its complaint filed in U.S. District Court for the Eastern District of Missouri, the government claims that Midwest violated the Fair Housing Act and ECOA and engaged in a pattern or practice of discrimination on the basis of race and color. The company has allegedly served the credit needs of the residents of predominantly white neighborhoods on the Missouri side of the St. Louis area.

The U.S. Attorney's Office said Friday that it reached a $100,000 settlement with Nixon State Bank. The agreement settles a lawsuit filed in U.S. District Court for the Western District of Texas.

The Nixon, Texas-based bank allegedly charged higher loan prices to Hispanic borrowers in violation of the ECOA. One factor tied to the alleged discrimination was the lack of a written loan pricing policy prior to 2009. As part of the settlement, the pricing policies will be revised to comply with the ECOA.

The Department of Housing and Urban Development held a June 1 news conference to announce a settlement with Cornerstone Mortgage Co. over alleged discrimination in the case of a pregnant loan applicant. At the same press conference, HUD said a lawsuit was filed against MGIC Investment Corp. for violating the Fair Housing Act.

HUD alleges that the mortgage insurer denied coverage to a woman because she was on maternity leave. A July 2010 e-mail at MGIC said that Pennsylvania loan applicant Carly F. Neals couldn't be approved for mortgage insurance until she returned to work on a full-time basis.

"HUD's Federal Housing Administration requires its approved lenders to review a borrower's income to determine whether they can reasonably be expected to continue paying their mortgage," the statement said. "FHA-insured lenders cannot, however, inquire about future maternity leave.

"If a borrower is on maternity or short-term disability leave at the time of closing, lenders must document the borrower's intent to return to work, that the borrower has the right to return to work, and that the borrower qualifies for the loan taking into account any reduction of income due to their leave."

A $30,000 conciliation agreement (FHEO Case No. 04-09-0053-8) was reached between HUD and Charles Schwab Bank on March 10. Schwab allegedly violated the Fair Housing Act when it discriminated against a woman belonging to a protected class.

According to a redacted copy of the agreement, the borrower -- who is physically and mentally disabled -- tried to submit a loan application in February 2008 to Schwab through her caretaker son. But Schwab said it would not accept a power of attorney or loan application on behalf of an incapacitated borrower.

"Respondent's policies and procedures do not prohibit the taking of an application from an incapacitated borrower by means of a durable power of attorney," the agreement said. "It is the bank's position that the alleged violation was the result of a miscommunication or an individual's failure to appropriately understand and execute respondent's policies and procedures with respect to incapacitated borrowers and powers of attorney."

Wells Fargo & Co. is fighting lawsuits filed by government officials in three states.

Wells has responded to a 2009 lawsuit by the City of Memphis, Tenn., and the encompassing Shelby County indicating that the areas foreclosure problems were caused by events such as layoffs, medical illness and divorce and not from discriminatory lending, The Commercial Appeal announced. The bank reportedly told the publication that its own review of the lawsuit found that the allegations "simply do not withstand scrutiny."

The judge in another lawsuit against Wells by the City of Baltimore filed in 2008 approved an amended complaint filed by Baltimore more than three years after the lawsuit was first filed, the Daily Record reported. The amended complaint alleges that Wells steered black borrowers who qualified for prime loans into subprime mortgages and targeted unqualified borrowers for refinance or home-equity loans that caused them to lose their houses.

In Ohio, Attorney General Michael DeWine filed a lawsuit against Wells on behalf of the Ohio Civil Rights Commission alleging that the lender used reverse redlining to herd black borrowers into more expensive loans, according to ConsumerAffairs.com. Named as plaintiff in the lawsuit is Warrensville Heights, Ohio, resident Latonya Sykes-Jackson, who borrowed $122,700 in February 2007.


Federal Trade Commission, Plaintiff, v. Golden Empire Mortgage, Inc., a corporation, and Howard D. Kootstra, individually and as a corporate officer, Defendants.
Case No. CV09-03227 (SHx) FTC File No. 0623061, May 7, 2011 (United States District Court For the Central District of California).


United States of America, Plaintiff, v. Midwest Bankcentre, Defendant.
June 16, 2011 (U.S. District Court for the Eastern District of Missouri).


Sam Garcia founded Mortgage Daily in 1998 and became its full-time publisher in 2000. Before that, he worked in mortgage lending for two decades.

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