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CFPB and DOJ Settle With Mortgage Lender for Alleged Discriminatory Mortgage Pricing
On May 28, the CFPB, along with the DOJ, filed a joint complaint against a California-based mortgage lender alleging that the lender violated the Equal Credit Opportunity Act by engaging in a pattern or practice of discrimination from 2006 to 2011 that increased loan prices for African-American and Hispanic borrowers. The DOJ also alleges that the lender violated the Fair Housing Act. According to the complaint, the lender’s mortgage broker compensation policy, which incented discretionary interest rate and fee increases to borrowers, resulted in approximately 14,000 African-American and Hispanic borrowers being charged higher total broker fees on wholesale mortgage loans than non-Hispanic white borrowers. The complaint alleges that the higher fees were not based on the borrowers’ credit risk profile, but rather on the basis of race or national origin. The parties separately filed a proposed consent order which would require the mortgage lender to, among other things, pay $9 million in consumer relief to affected borrowers to resolve the allegations. The proposed consent order is currently pending court approval.
DOJ Files Lawsuit Against City of Beaumont, Texas for Alleged FHA Violations
On May 26, the DOJ announced a lawsuit against the city of Beaumont, Texas (Beaumont) for allegedly violating the Fair Housing Act (FHA) and the Americans with Disabilities Act. According to the DOJ’s complaint, Beaumont’s Zoning Code imposes a one-half mile spacing restriction on small community homes for persons with intellectual or developmental disabilities; this means that no such community home may operate within one-half mile of another such community home. The DOJ alleges that Beaumont’s Zoning Code does not similarly restrict the spacing of housing for persons without disabilities. In addition, the DOJ asserts that Beaumont imposes on community homes for persons with disabilities excessive fire safety requirements that are not imposed on similarly situated housing for persons without disabilities. According to the DOJ, Beaumont’s policies have “compelled the closure of several community homes” and prohibited “new community homes from opening or operating in most of Beaumont’s residential neighborhoods,” forcing residents with disabilities to move to institutional settings or out of Beaumont. The lawsuit, which arose after complaints were filed with HUD, requests that the Court enter an Order under which Beaumont, among other things, would be (i) enjoined from enforcing the one-half mile spacing rule or fire safety requirements that apply only to community homes of persons with disabilities, (ii) required to restore (to the extent practical) the alleged victims to the position they would have been in but for the alleged violations, and (iii) required to pay monetary damages.
National Non-Profit Fair Housing Organization Files Complaint Against Fannie Mae Alleging Racial Discrimination
On May 12, 2015, the National Fair Housing Alliance (NFHA) and 19 local fair housing organizations (collectively, the “Complainants”) filed a fair housing discrimination complaint with the U.S. Department of Housing & Urban Development against Fannie Mae alleging a pattern of maintaining and marketing its foreclosed houses in white areas better than in minority areas. The complaint is the result of a five year investigation where investigators visited and documented the conditions of the foreclosed properties that Fannie Mae owns in 34 metro areas. In each of the investigated metropolitan areas, the Complainants allege that Fannie Mae engaged in the practice of maintaining and marketing its REO properties in a state of disrepair in communities of color while maintaining and marketing REO properties in predominantly White communities in a materially better condition. Fannie Mae REO properties in White communities were far more likely to have a small number of maintenance deficiencies or problems than REO properties in communities of color, while REO properties in communities of color were far more likely to have large numbers of such deficiencies or problems compared to those in White communities. As a result, the Complainants allege that Fannie Mae violated the Fair Housing Act, Title VIII of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988, including but not limited to 42 U.S.C. §§ 3604(a)-(d). The housing advocacy groups are calling for Fannie Mae to clean up the neglected properties and spend "millions" of dollars on grants or other compensation for those trying to buy foreclosed houses and people living in communities affected by them.
Southern District of New York Denies Class Certification in Fair Lending Suit Against Global Investment Bank
On May 14, the District Court for the Southern District of New York denied class certification status in a fair lending suit brought by the ACLU and NCLC against a global investment bank. Adkins v. Morgan Stanley, No. 12-CV-7667 (VEC) (S.D.N.Y. May 14, 2015). The Plaintiffs had alleged that the bank, as a significant purchaser of subprime residential mortgage loans, had caused a disparate impact on African-American borrowers in Detroit in violation of the Fair Housing Act and the Equal Credit Opportunity Act. In an exhaustive 50-page opinion, the court denied class certification on multiple grounds, including the variation in loan types and the role of broker discretion. BuckleySandler anticipates the ruling will be widely cited in future fair lending class actions.
FHA Revises Single-Family Housing Policy HandBook, Extends Effective Dates
On April 30, the FHA announced revisions to its Single Family Housing Policy HandBook (HandBook) and extended the effective date for various policies contained within from June 15 to September 14, 2015. The policy topics affected include, (i) the annual mortgage insurance premium reductions, (ii) the maximum mortgage limits 2015, (iii) the electronic appraisal delivery portal, and (iv) the refinance of borrowers in negative equity positions program.
U.S. Files Complaint Against Leading Non-Bank Mortgage Lender For Alleged Improper Underwriting Practices on FHA-Insured Loans After Lender Files Suit Against U.S. Alleging Arbitrary and Capricious Investigation Practices
On April 17, Quicken Loans filed a preemptive lawsuit against the DOJ and HUD in the Eastern District of Michigan against HUD, the HUD-IG, and DOJ, asserting that it “appears to be one of the targets (due to its large size) of a political agenda under which the DOJ is “investigating” and pressuring large, high-profile lenders into paying nine- and ten-figure sums and publicly ‘admitting’ wrongdoing, including conceding that the lenders had made ‘false claims’ and violated the False Claims Act.” Specifically, the complaint alleged that HUD, the HUD-IG, and DOJ retroactively changed the process for evaluating FHA loans, from an individual assessment of a loan’s compliance, taking into account a borrower’s individual situation, the unique nature of each property, and the specific underwriting guidelines in effect, to a sampling method which extrapolates any defects found in a small subset of loans across the entire loan population, contrary to HUD’s prior guidance and in violation of the Administrative Procedures Act. The complaint further alleged that the sampling method used by the government was flawed, and asked for declaratory and injunctive relief against the government’s use of sampling. Quicken also asked the court to rule that the FHA loans it made between 2007-2011 in fact were “originated properly in accordance with the applicable FHA guidelines and program requirements, and pose no undue risk to the FHA insurance fund,” asserting that “HUD reviewed a number of these loans and, except in a few rare instances, either concluded the loans met all FHA guidelines or that any issues were immaterial or had been cured.”
Six days later, the government filed its own lawsuit against Quicken in the District of Columbia seeking damages and civil penalties under the False Claim Act. U.S. v. Quicken Loans Inc, No. 15-0613, (D.D.C. April 23, 2015). The government’s complaint alleges that from September 2007 through December 2011, Quicken knowingly approved loans that violated FHA rules while falsely certifying compliance with those rules. The complaint alleged that Quicken encouraged practices that “allow ‘exceptions’ to HUD’s underwriting requirements, requesting inflated appraisals, manipulating key data, pressuring underwriters to approve loans faster, paying prohibited commission to its underwriters for approved loans, and encouraging underwriters to disregard risks that were evident in the loan files.” The complaint also criticized Quicken’s quality control process, alleging that the lender “underreported the magnitude of underwriting deficiencies, failed to adequately assess compliance with FHA requirements, and failed to disclose Quicken’s underwriting failures to HUD.”
DOJ Submits 2014 Equal Credit Opportunity Act Annual Report to Congress
On April 13, the DOJ released its 2014 Annual Equal Credit Opportunity Act (ECOA) Report highlighting its activities to address credit discrimination. The twenty-page report highlights discrimination lawsuits and settlements in the automobile lending and credit card industry, as well as a consent order resulting from alleged discrimination on the basis of disability and the receipt of public assistance. It also includes information on the DOJ’s work under other federal fair lending laws including the Fair Housing Act (FHA) and the Servicemember Civil Relief Act (SCRA). According to Vanita Gupta, Acting Assistant AG for the Civil Rights Division, in the five years since the Fair Lending Unit was established, the Civil Rights Division has filed or resolved 37 lending matters under the ECOA, FHA, and SCRA. Total settlements in these matters, including enforcement actions from 2014, have resulted in over $1.2 billion in monetary relief for affected borrowers and communities.
CFPB Orders Mortgage Lender to Pay $250,000 Penalty for Deceptive Advertising
On April 9, the CFPB announced a consent order with a California-based mortgage lender, requiring the lender to pay a $250,000 civil money penalty for advertising that allegedly led customers to believe the company was affiliated with the U.S. government. According to the consent order, the advertisements used the names and logos of the VA and FHA, described loan products as part of a “distinctive program offered by the U.S. government,” and instructed consumers to call the “VA Interest Rate Reduction Department” at a phone number belonging to the mortgage lender, thus implying that the mailings were sent by government agencies. The CFPB further alleged that the advertisements misrepresented interest rates and estimated monthly payments, including whether the interest rate was fixed or variable, and that consumers who called the company were sometimes told that the lender was endorsed by the VA or FHA. The CFPB determined that the advertisements were deceptive and misleading in violation of the CFPA and the Mortgage Acts and Practices Rule (MAP Rule or Regulation N). The CFPB also alleged violations of TILA and Regulation Z for failing to include certain disclosures in the advertisements. In addition to the civil money penalty, the consent order requires the lender to submit a compliance plan to the CFPB and comply with additional record keeping, reporting, and compliance monitoring requirements.
HUD Announces National Fair Housing Media Campaign; DOJ Acting Assistant AG Gupta Delivers Remarks
On April 1, HUD held a special Fair Housing event and announced a national media campaign to help ensure that all Americans – regardless of race, color, national origin, religion, gender, family status, and disability – receive equal access to housing, as per the FHA. Through various media channels, the new campaign will (i) increase the public’s awareness of housing discrimination; and (ii) explain how to report violations of the FHA. The new campaign is designed to further the agency’s enforcement efforts when FHA violations occur. At the same event, DOJ Acting Assistant AG Gupta delivered remarks regarding recent actions taken in response to alleged housing discrimination. Specifically, Gupta noted that while racial discrimination remains prevalent, familial status discrimination has recently become a significant concern and that the DOJ and HUD “continue to see the scourge of sexual harassment in housing.” Finally, Gupta emphasized that HUD’s proposed rule on Affirmatively Furthering Fair Housing is “an important way to ensure that the promises of the Fair Housing Act will continue to be fulfilled.”
Trade Association Urges HUD to Delay Effective Date on Single-Family Housing Policy HandBook
On March 26, 2015, the Mortgage Bankers Association (MBA) sent a letter to HUD’s Deputy Assistant Secretary Zadareky seeking clarification, guidance, and answers to outstanding questions raised by HUD’s early drafts of its new comprehensive Federal Housing Administration Single-Family Housing Policy Handbook. The MBA raises five particular concerns and requests a possible delay for the scheduled implementation date of June 15, 2015 for the following reasons in order to give the industry time to adapt including (i) some of the policy changes in the Handbook are expected to mean changes for the TOTAL Scorecard, and lenders will need access to a revised Developers Guide in order to align their systems with HUD’s systems; (ii) lenders are adapting to a large number of new legal and regulatory requirements. The TILA-RESPA Integrated Disclosure rule alone constitutes a major shift for lenders; (iii) it is currently not clear where a lender would go to find out if a borrower’s federal debt has been referred to the US Treasury for collection in order to comply with the Handbook’s requirement that delinquent Federal debt be resolved in accordance with the Debt Collection Improvement Act; (iv) the new required treatment of excluded parties puts an impossible burden on lenders because the lender must now guarantee that an employee of another company with which the lender is working does not have an employee who has been suspended or debarred by HUD; and (iv) the Handbook’s new definition of satisfactory credit is unclear and conflicts with payment history requirements in other sections of the Handbook.