A New York firm that was sued earlier this year by the government over practices that allegedly produced higher mortgage rates for minority borrowers has admitted that its practices had a disparate impact and agreed to pay more than $3 million to settle the charges.
The U.S. Attorney in Manhattan, N.Y., filed a federal lawsuit in April against GFI Mortgage Bankers Inc. alleging violations of the Fair Housing Act and the Equal Credit Opportunity Act. The action was prompted by a 2010 referral from the Department of Housing and Urban Development to the Department of Justice’s Civil Rights Division.
The Manhattan-based lender allegedly put black and Hispanic borrowers into more expensive loans than similarly situated white borrowers. The discrimination allegedly occurred from 2005 until 2009.
GFIÂ filed a motion to dismiss the case, and the Justice Department filed an opposition to the motion. But the court was skeptical of GFI’s argument that federal law allows lenders to price loans in a manner that produces such disparate impact on minority borrowers, according to the government.
On Tuesday, the Justice Department announced that a settlement has been reached with GFI for $3,555,000. The settlement includes $3.5 million in compensation to around 600 minority borrowers and a $55,000 civil penalty allowed by the Fair Housing Act.
GFIÂ is required to develop and implement new policies that limit loan originator pricing discretion, document loan pricing decisions and monitor pricing disparities based on race and national origin that are not justified by objective borrower credit characteristics or loan features.
The lender reportedly admitted that it charged minorities more without being able to justify the pricing based on objective borrower characteristics or loan product features. In fact, originators were provided with financial incentives for charging higher rates — a common pre-bubble practice.
