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Financial Services Law Insights and Observations


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  • District Court grants summary judgment in discriminatory lending suit


    On February 10, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a national bank, its subsidiary, and a lending corporation (collectively, “defendants”) with respect to discriminatory lending allegations brought by the County of Cook in Illinois (County). The County alleged that the defendants “identified and targeted minority borrowers ‘using advanced data mining techniques and predictive analysis methodologies,’” to make short-term profits from African American, Latino, and other borrowers protected by the Fair Housing Act through a purported “equity stripping scheme,” as well as by foreclosing disproportionately on their homes. The alleged illegal practices included, among other things, marketing loan products to consumers who were not qualified for them, offering incentives to employees to increase loan volume among borrowers with lower credit scores, and making high-risk loans. However, the court found that “even if a jury were persuaded that [the defendants] engaged in one or more of these practices at some point between 2004 and 2012, nothing in the county’s submissions offers a basis for the jury to leap from such a finding to the conclusion that defendants carried out an integrated equity stripping scheme targeting minority borrowers.” With respect to the County’s claim that defendants used “data mining” to identify and target minority populations for the purpose of marketing its home loans, the court found that “[I]f there is any authority for the proposition that soliciting business from minority prospects, or marketing in neighborhoods with a high concentration of minority residents, amounts to intentional discrimination in violation of the FHA, the county has not cited it.” The court also ruled that “[b]ecause the [County] acknowledges that its ledger (including the appropriations and expenditures of the three offices it claims had additional costs) was not affected by the alleged discrimination, compensatory damages are unavailable.”

    Courts Fair Housing Act Fair Lending Mortgages

  • Fannie Mae to pay $53 million to settle fair housing violations

    Federal Issues

    On February 7, the Fair Housing Advocates of Northern California, along with the National Fair Housing Alliance and 19 local fair housing organizations from across the country announced a $53 million settlement with Fannie Mae to resolve allegations that Fannie Mae allowed foreclosed homes in predominantly White neighborhoods to be better maintained and marketed than similar homes in communities of color, a claim corroborated by a four year-long investigation of over 2,300 Fannie Mae real estate owned (REO) properties in 39 metropolitan areas. The plaintiffs alleged that they attempted to get Fannie Mae to voluntarily comply with the Fair Housing Act and change its discriminatory policies and practices, but claimed that Fannie Mae “continued to maintain its REO properties differently based on the predominant race and national origin of neighborhoods” and caused “particularized and concrete injury to those homeowners and residents.”

    Under the terms of the settlement, Fannie Mae is required to pay $53 million to cover claims for damages, attorneys’ fees, and cost. Nearly $35.4 million of the settlement amount will be used to address community needs, including “addressing home ownership, neighborhood and/or community stabilization, access to credit, property rehabilitation, residential development in African American and Latino communities, fair housing education and outreach, counseling, and other fair housing activities” in the allegedly harmed areas.

    The announcement further noted that the plaintiffs—who will manage and disburse the settlement funds—intend to provide grants that will go towards down-payment assistance for first-generation homebuyers and renovations for homes that languished in foreclosure, as well as innovative programs and partnerships to promote fair housing. The announcement also noted that Fannie Mae has implemented several measures to avoid similar occurrences in the future, such as increasing its oversight of maintenance of its REO properties, prioritizing owner-occupants instead of investors as purchasers of REOs, ensuring compliance with fair housing laws, and providing fair housing training to its employees and vendors. According to the announcement, this case marks the first time a federal court confirmed that the Fair Housing Act has covered the maintenance and marketing of REO properties.

    Following the announcement, HUD released a statement applauding the settlement. “It is our hope that settlement of these cases will bring about much needed positive outcomes for these undeserved communities,” Principal Deputy Assistant Secretary for HUD’s Office of Fair Housing and Equal Opportunity Demetria L. McCain said. “We also hope mortgage lenders across the country will take steps to avoid fair housing violations in their own REO portfolios.”

    Federal Issues Fannie Mae Enforcement Fair Housing Mortgages State Issues California National Fair Housing Alliance REO Fair Housing Act HUD

  • Agencies emphasize illegality of appraisal discrimination

    Federal Issues

    On February 4, CFPB Fair Lending Director Patrice Ficklin, along with senior staff from the Federal Reserve Board, OCC, FDIC, NCUA, HUD, FHFA, and DOJ, sent a joint letter to The Appraisal Foundation (TAF) emphasizing that discrimination prohibitions under the Fair Housing Act (FHA) and ECOA extend to appraisals. The joint letter, sent in response to a request for comments on proposed changes to the 2023 Appraisal Standards Board Ethics Rule (Ethics Rule) and Advisory Opinion 16, noted that while provisions prohibit an appraiser from relying on “unsupported conclusions relating to characteristics such as race, color, religion, national origin, sex, sexual orientation, gender, marital status, familial status, age, receipt of public assistance income, disability, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value,’” the “provisions do not prohibit an appraiser from relying on ‘supported conclusions’ based on such characteristics and, therefore, suggest that such reliance may be permissible.” The letter noted that the federal ban on discrimination under the FHA and ECOA is not limited only to “unsupported” conclusions, and any discussions related to potential appraisal bias should be consistent with all applicable nondiscrimination laws. The joint letter encouraged TAF to present the nondiscrimination requirements as “an essential part of any guidance provided in the Ethics Rule or Advisory Opinion 16 to ensure compliance with fair housing and fair lending laws.”

    In a blog post, Ficklin noted that despite the fact that federal law prohibits racial, religious, and other discrimination in home appraisals, there are still reports of appraisers making “value judgments on biased, unfounded assumptions about borrowers and the neighborhoods in which they live.” Additionally, Ficklin noted that the Bureau is carefully reviewing findings presented in a report funded by the Federal Financial Institutions Examination Council's Appraisal Subcommittee, which raised serious concerns related to existing appraisal standards and provided recommendations with respect to fairness, equity, objectivity, and diversity in appraisals and the training and credentialing of appraisers.

    Federal Issues CFPB Appraisal Fair Lending Fair Housing Act ECOA Federal Reserve OCC FDIC NCUA HUD FHFA DOJ FFIEC Bank Regulatory

  • District Court dismisses discriminatory lending allegations


    On January 27, the U.S. District Court for the Eastern District of California entered a stipulated final judgment and order dismissing the City of Sacramento’s suit against a national bank concerning alleged discriminatory lending following a decision issued by U.S. Court of Appeals for the Ninth Circuit, which affirmed in part and reversed in part the district court’s decision to partially dismiss an action brought by the City of Oakland, alleging a national bank violated the Fair Housing Act (FHA) and California Fair Employment and Housing Act. (Covered by InfoBytes here.) Oakland alleged that the national bank violated the FHA and the California Fair Employment and Housing Act by providing minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) reduced spending in Oakland’s fair-housing programs. (Covered by InfoBytes here.) In September 2021, as previously covered by InfoBytes here, the 9th Circuit issued an en banc decision concluding that the Fair Housing Act (FHA) “is not a statute that supports proximate cause for injuries further downstream.” The Oakland decision was binding in this action, and, following Oakland’s decision not to pursue a petition for writ of certiorari in the U.S. Supreme Court, the court dismissed Sacramento’s complaint with prejudice.

    Courts Fair Lending Fair Housing Act State Issues Appellate Ninth Circuit

  • OCC updates OREO booklet

    On December 20, the OCC issued Bulletin 2021-65 announcing the revision of the Other Real Estate Owned (OREO) booklet of the Comptroller’s Handbook, which applies to the OCC’s supervision of community banks. The updated booklet replaces the booklet of the same title issued in September 2020, and rescinded OCC Bulletin 2020-79, “Other Real Estate Owned: Updated Comptroller’s Handbook Booklet.” (Covered by InfoBytes here.) Among other clarifying changes, the updated booklet: (i) defines physical possession as it pertains to OREO properties; and (ii) updates ownership obligations and actions as they pertain to the Fair Housing Act.

    Bank Regulatory Federal Issues OCC Comptroller's Handbook Real Estate OREO Fair Housing Act

  • Chopra, Hsu encourage use of special purpose credit programs

    Federal Issues

    On December 6, CFPB Director Rohit Chopra released a statement regarding HUD’s guidance, also issued that day, clarifying that special purpose credit programs that conform with ECOA and its implementing regulation, Regulation B, generally do not violate the Federal Housing Act. According to HUD’s memorandum, the two statutes are complementary and “intended to harmoniously coexist.” As previously covered by InfoBytes, in December 2020, the CFPB issued an advisory opinion addressing Regulation B as it applies to certain aspects of special purpose credit programs. In his statement, Chopra encouraged creditors “to explore the opportunities available through special purpose credit programs,” which “provide targeted means by which creditors can better serve communities who have been historically shut out or otherwise disadvantaged.”

    Acting Comptroller of the Currency Michael Hsu also issued a statement encouraging banks and federal savings associations to “explore the opportunities available through special purpose credit programs.” Taking advantage of the special purpose credit program provisions of ECOA and Regulation B “can be a significant step in addressing the racial and ethnic homeownership and wealth gaps that persist in the United States,” Hsu stated.

    Federal Issues HUD CFPB OCC Bank Regulatory Regulation B ECOA Fair Housing Act SPCP Consumer Finance

  • HUD updates appraisal fair housing compliance

    Federal Issues

    On November 17, HUD issued Mortgagee Letter 2021-27, which provides updates on appraisal fair housing compliance and general appraiser requirements. According to HUD, the letter clarifies FHA’s existing requirements for appraisers and mortgagees on compliance with fair housing laws related to appraisal of properties that will serve as security for FHA-insured mortgages, and applies to all FHA Single Family Title II Forward and Reverse Mortgage Programs. Among other things, the changes include: (i) revising the Appraisers Post-Approval Requirements section to emphasize compliance with applicable laws, including the Fair Housing Act and all other federal, state, and local antidiscrimination laws; (ii) clarifying language in the Quality of Appraisal section to emphasize the requirement that mortgagees ensure the appraisal complies with applicable laws, including the Fair Housing Act and other federal, state, and local antidiscrimination laws; and (iii) restructuring a section of the General Appraiser Requirements into subsections, which clarifies guidance to the nondiscrimination policy and compliance with FHA guidelines and appraiser conduct. The mortgagee letter is effective immediately.

    Federal Issues HUD Mortgages FHA Consumer Finance Appraisal Fair Housing Act

  • NCRC files fair housing complaints with HUD against mortgage lenders

    Federal Issues

    On November 1, the National Community Reinvestment Coalition (NCRC) announced it had filed fair housing complaints with HUD against two mortgage lenders for allegedly engaging in discriminatory behavior against prospective Black clients. The first complaint is based on a matched-pair test conducted in the Seattle/Tacoma, Washington area, which allegedly demonstrated that lending specialists provided different lending product information to prospective borrowers based on race. NCRC also alleged that the lender’s HMDA data showed lending behaviors consistent with discriminatory practices. NCRC also conducted matched-pair testing on a second lender’s practices in the Charlotte, North Carolina area. According to the complaint, the lender also allegedly provided different information and more favorable services to White testers. An examination of the lender’s HMDA data similarly showed alleged discriminatory lending patterns.

    Federal Issues NCRC HUD Fair Lending Fair Housing Act Mortgages HMDA

  • DOJ, CFPB, and OCC announce aggressive redlining initiative; take action against national bank for alleged lending discrimination

    Federal Issues

    On October 22, the DOJ, in collaboration with the CFPB and the OCC, announced a new initiative to combat redlining and lending discrimination. The Combatting Redlining Initiative will be led by the DOJ’s Civil Rights Division’s Housing and Civil Enforcement Section in partnership with U.S. Attorney’s offices, and will, among other things, (i) “ensure that fair lending enforcement is informed by local expertise on housing markets and the credit needs of local communities of color”; (ii) “[e]xpand the department’s analyses of potential redlining to both depository and non-depository institutions” (the DOJ noted that non-depository lenders now make the majority of mortgages in the U.S.); (iii) strengthen financial regulator partnerships to ensure fair lending violations are identified and referred to the DOJ; and (iv) increase fair lending coordination with state attorneys general to identify potential violations. Attorney General Merrick Garland stated that the initiative will “address[] modern-day redlining by making far more robust use of our fair lending authorities,” and marks the DOJ’s “most aggressive, coordinated effort to address redlining.” Garland noted that several redlining investigations are currently ongoing and more are expected to be opened in the upcoming months.

    In his remarks, CFPB Director Rohit Chopra also warned that the Bureau will be “closely watching for digital redlining, disguised through so-called ‘neutral algorithms, that may reinforce the biases that have long existed.’” He added that “the speed with which banks and lenders are turning lending and advertising decisions over to algorithms is concerning,” and cautioned against assuming that algorithms will be bias free.

    In conjunction with the announcement of the multi-agency initiative, the DOJ, CFPB, and OCC, took action against a national bank for alleged redlining practices. According to the complaint, the bank violated the Fair Housing Act, ECOA, and the CFPA by deliberately engaging in conduct that discouraged consumers in majority-Black and Hispanic neighborhoods in the Memphis metropolitan area from seeking credit. The bank also allegedly established a limited number of branches in majority-Black and Hispanic communities, and did not provide mortgage-lending services to walk-in customers in these neighborhoods. The complaint further alleged, among other things, that the bank’s fair lending policies and procedures did not adequately ensure equal access to credit to majority-Black and Hispanic neighborhoods, and that internal governance and oversight committees to oversee fair lending were not established until after the OCC initiated a fair lending examination of the bank.

    Under the terms of the proposed settlement, the bank will be required to pay a $5 million civil money penalty. The bank will also have to invest $3.85 million through a loan subsidy program to increase access to credit, and provide $400,000 to develop community partnerships to increase access to residential mortgage credit. The loan subsidy program will go towards closing cost assistance, down payment assistance, and payment of mortgage insurance premiums. Additionally, the bank must increase branches and outreach efforts in majority-Black and Hispanic neighborhoods, devote at least $200,000 in targeted advertising annually to generate applications for mortgages in these neighborhoods, and take remedial efforts to improve its fair lending compliance.

    Federal Issues CFPB DOJ OCC Enforcement Fair Lending Mortgages Redlining Fair Housing Act ECOA Consumer Finance

  • En banc 9th Circuit: FHA does not support downstream injuries


    On September 28, the U.S. Court of Appeals for the Ninth Circuit issued an en banc decision concluding that the Fair Housing Act (FHA) “is not a statute that supports proximate cause for injuries further downstream.” As previously covered by InfoBytes, the City of Oakland sued a national bank alleging violations of the FHA and the California Fair Employment and Housing Act, claiming the bank provided minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, which led to disproportionate defaults and foreclosures and caused (i) decreased property tax revenue; (ii) increased city expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. In 2020, a three-judge panel affirmed both the district court’s denial of the bank’s motion to dismiss claims for decreased property tax revenue, as well as the court’s dismissal of Oakland’s claims for increased city expenditures. (Covered by InfoBytes here.) The panel further held that Oakland’s claims for injunctive and declaratory relief were also subject to the FHA’s proximate-cause requirement and, on remand, the district court must determine whether Oakland’s allegations satisfied this requirement. The bank filed a petition for panel rehearing and rehearing en banc last year arguing, among other things, that the panel had “fashioned a looser, FHA-specific proximate-cause standard” in conflict with the U.S. Supreme Court’s decision in Bank of America Corp. v. City of Miami. As covered by a Buckley Special Alert, in 2017, the Supreme Court held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, but that such injuries must be proximately caused by, rather than simply the foreseeable result of, the alleged misconduct. 

    The 9th Circuit agreed with the bank and remanded the case for dismissal of the FHA claims and proceedings consistent with the opinion. Citing the Miami decision as one of the leading factors, the panel stated that “[w]e begin where Miami began, with ‘[t]he general tendency. . .not to go beyond the first step,’” adding that “[t]here is no question that Oakland’s theory of harm goes beyond the first step—the harm to minority borrowers who receive predatory loans. Oakland’s theory of harm runs far beyond that—to depressed housing values, and ultimately to reduced tax revenue and increased municipal expenditures. Oakland thus fails a strict application of the general tendency not to stretch proximate causation beyond the first step.” The panel also affirmed the district court’s decision that Oakland failed to sufficiently plead claims related to increased municipal expenditures and reversed the district court’s denial of the bank’s motion to dismiss claims for lost property tax revenue and injunctive and declaratory relief.

    Courts Appellate Ninth Circuit Fair Housing Fair Housing Act Consumer Finance State Issues Fair Lending U.S. Supreme Court


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