A California mortgage firm that originates more than $2 billion annually settled for $5.5 million allegations that it charged Hispanic borrowers higher interest rates and split the yield spread premiums with its loan originators.
The company, Golden Empire Mortgage Inc., was originally sued in U.S. District Court For the Central District of California in May 2009. It is parent to GEM Mortgages and is a net branch operator.
Golden Empire owner Howard D. Koostra is also named as a defendant.
The plaintiff in the case, the Federal Trade Commission, claims Golden Empire made exceptions to its overage caps during 2006 for Hispanic borrowers “substantially and significantly more frequently” than for non-Hispanic whites. Each exception involved overages of more than 3 percent.
Today the FTC announced that Golden Empire has agreed to settle the charges.
“They illegally charged Hispanic consumers higher prices for mortgage loans than non-Hispanic white consumers — price disparities that could not be explained by the applicants’ credit characteristics or underwriting risk,” today’s announcement said.
While the settlement was for $5.5 million, the FTC agreed to suspend all but $1.5 million in consumer redress — though the full judgment will become due if it is found that the defendants misrepresented their financial condition.
The terms of the settlement prohibit the defendants from discriminating based on national origin and from violating the Equal Credit Opportunity Act and its implementing Regulation B. The company is required to establish a policy that restricts the ability of originators to exercise pricing discretion. It also needs to establish a system to monitor fair lending.
The FTC noted that a wide set of variables were involved in determining the order against Golden Empire.
The agency advised lenders to examine their lending policies, business models and business necessities in order to develop an appropriate monitoring program. The examination should include statistics about loan characteristics, geographic variations and other relevant factors.
“Lenders who allow discretion in pricing loans can’t escape liability simply by burying their heads in the sand,” FTC Chairman Jon Leibowitz said in the statement. “Those lenders must monitor discretionary pricing to ensure that American borrowers are treated equally based on their credit – not their race, national origin, or gender.”
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, FTC File No. 0623061, May 1, 2009 (U.S. District Court For the Central District of California).
