Fair Lending Actions Expected to Grow

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6 · 04 · 12

Two high-profile discrimination lawsuits were recently settled, and experts predict that more such actions are ahead. But there are steps that mortgage firms can take to avoid the costly repercussions from related regulatory actions and litigation.

The Department of Justice announced last week that SunTrust Mortgage Inc. settled for $21 million a lawsuit filed by the government over alleged discriminatory pricing by the lender’s retail originators and mortgage brokers. SunTrust allegedly violated the Fair Housing Act and the Equal Credit Opportunity Act by charging black and Hispanic borrowers higher fees and interest rates.

A day earlier, Wells Fargo & Co. disclosed a $7.5 million settlement with the city of Memphis, Tenn., and Shelby County, Tenn., over a 2010 lawsuit that also alleged violations of the Fair Housing Act with “unlawful, irresponsible, unfair, deceptive and discriminatory” lending practices in mostly black neighborhoods that led to a foreclosure crisis and drained local government funds.

GFI Mortgage Bankers Inc. was sued by the Justice Department in April over allegations it violate the Fair Housing Act and ECOA by charging blacks more than similarly situated whites.

In February, HUD accused Bank of America Corp. of discriminating against homeowners with disabilities, while the Charlotte, N.C.-based bank agreed in February to settle Justice Department allegations that subsidiary Countrywide Financial Corp. systematically discriminated against minority borrowers.

Other Fair Housing Act settlements during the past year include four cases involving maternity leave. Mortgage Guaranty Insurance Corp. settled with the Justice Department for $540,000; settlements with Magna Bank and Home Loan Center Inc. were announced in April by the Department of Housing and Urban Development, each for around $15,000; and Cornerstone Mortgage Co. settled in June 2011 with HUD.

Two dozen discrimination cases were included in Mortgage Daily’s Mortgage Litigation Index last year — surging from just five cases covered in 2010.

“The number that we have in 2011 is a massive increase from what we’ve seen in previous years,” Ballard Spahr Partner Christopher J. Willis said during the Mortgage Litigation Index webinar hosted by Mortgage Daily on May 30. “And in previous years we thought we were seeing a lot of fair lending litigation.”

Willis, who works in Ballard Spahr’s consumer financial services group, noted that the potential liability in these cases is very large.

In addition, the reputational impact is highly damaging. The nature of government announcements tend to grab news headlines.

He explained that the fair lending cases, which are predominantly filed by the government versus private plaintiffs, are very costly to defend because they usually revolve around competing statistical analyses. Even before the cases land in litigation, the statistical costs are incurred in preparation for possible lawsuits.

Willis forecasts an increase in government-filed fair lending cases during the upcoming year. Among potential government plaintiffs are the Consumer Financial Protection Bureau, HUD and the Justice Department. Federal banking agencies are also among prospective plaintiffs.

In addition, state attorneys general as well as municipalities are bringing cases alleging discrimination.

But the driving force behind much of the government litigation is expected to be the CFPB, which has an entire office dedicated to fair lending, involves fair lending attorneys in every examination and enforcement investigation, and constantly emphasizes fair lending in public statements.

“I think we’re only going to see an increase in the number and severity of fair lending cases that are brought,” Willis predicted. “Again, you have all of these regulators who have made it a huge focus area, and there’s no reason to believe that they’re going to let off or reduce their activity in this area.

“In fact all signs point to the fact that more cases are coming.”

He noted that once the CFPB gets through its examinations and investigations, it will then be in a position to begin referring cases to the Justice Department. He expects this to begin happening later this year.

Wills advises lenders to conduct a risk assessment, concentrate on areas of discretion that can affect borrowers and assess the potential for “steering” violations among product lines. This should include a review of origination and servicing operations.

Then, lenders should examine customer complaints that might indicate possible discrimination do a statistical analysis. It might be helpful to utilize pairs of mystery shoppers to determine if similar borrowers are disparate terms. These practices are expected by the CFPB.

United States of America, Plaintiff, v. SunTrust Mortgage Inc., Defendant.
Case 3:12-cv-00397-REP, May 31, 2012 (U.S. District Court for the Eastern District of Virginia).

Case No. 2:11-cv-00882-RCM, July 5, 2011 (U.S. District Court for the Western District of Pennsylvania).

Case No. 2:10-cv-01291-DSC-RCM, Oct. 1, 2010 (U.S. District Court for the Western District of Pennsylvania).

Mortgage Expert

Mortgage Daily Staff



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