Jonice Gray Tucker quoted in Inside Mortgage Finance article, “Attorneys warn of more redlining actions under Biden”
Inside Mortgage FinanceJonice Gray Tucker
Two federal agencies recently took coordinated action against a mortgage lender for engaging in redlining, prompting compliance attorneys to warn that there could be an uptick in regulatory enforcement under the Biden administration.
“I anticipate significant and perhaps escalated activity in this area for a whole host of reasons,” said Jonice Gray Tucker, a partner at Buckley.
One of the key reasons, she said, is a renewed focus on social justice and racial equity for African Americans. Homeownership among African Americans “is close to the lowest levels in history,” she noted.
John Relman, managing partner at Relman Colfax, believes the administration will move “fairly quickly” with other actions, although he said he hasn’t heard any specifics.
Last week, the Department of Justice filed a lawsuit against Atlanta-based Cadence Bank for engaging in redlining from 2013 through 2017 in the Houston metro area.
The DOJ said the lender located all its branches and loan officers in predominantly white neighborhoods, which led to a “disproportionately low number of loan applications and home loans from majority-Black and Hispanic neighborhoods in Houston compared to similarly-situated lenders.”
Cadence entered into a settlement with the DOJ the same day, agreeing to invest $5.5 million to support mortgages in majority minority neighborhoods in and around Houston.
The lender also agreed to pay $3 million in penalties to settle similar charges brought against it by the Office of the Comptroller of the Currency.
Paul Murphy, CEO of Cadence, believes the lender “at all times acted in compliance” with fair lending laws.
Redlining in 2021 doesn’t look like it did in the middle of the last century, attorneys said, and lenders can face scrutiny today even without any overt discrimination.
“The term redlining is kind of a misnomer,” said Tori Shinohara, partner at Mayer Brown. “Nowadays it’s really about how many loans a lender is making in majority minority communities compared to peer lenders. There typically are no allegations of racial bias.”
Attorneys suggest steps institutions can take to mitigate against allegations of redlining.
“All institutions should make sure they have as part of their compliance department an analysis of their fair lending risk separate from other risks,” said Olivia Kelman, partner at K&L Gates.
Kelman recommends lenders review their loan policies and products to make sure they’re available on the same terms in all places they serve. They should also check with marketing partners to make sure advertisements are reaching minority communities. “It’s critical,” she said, “especially when there are new forms of digital advertising.”
Mortgage companies now also face a new risk, Relman said, relating to how they’ve helped borrowers through COVID-19-related federal forbearance programs.
Federal agencies will scrutinize how institutions assessed and improved their customer service performance during the forbearance programs, he said.
They will also look for disparities between how well loss mitigation efforts reached Black, Hispanic and white communities, Relman added. “It’s clear that the COVID crisis hurt minority and Black neighborhoods more than white neighborhoods,” he noted.
Shinohara recommended that lenders proactively analyze how many loans they’re funding in majority minority census tracts versus white areas, compared to their peers.
Tucker agreed. “There’s a heavier reliance on cases being brought on statistics and statistics alone without a whole lot more. We’ve moved to what might be called comparative redlining, without the typical markers of intentional discrimination.
“Historically, redlining has been based on disparate treatment theory, which connotes some level of intentionality, but the starting point for modern day redlining is often statistical.”
Even large institutions may look for outside help from lawyers or statisticians when setting up a fair lending compliance department or facing a redlining claim, said K&L Gates’ Kelman.
“Mortgage companies have to be prepared to evaluate themselves against peers, which means understanding who your peers are,” the Relman Colfax attorney said. “Hopefully, you’re best in class. If not, you’re clearly a target.”
Shinohara also recommended lenders examine their hiring practices to make sure they employ loan officers who match the diversity of their communities.
Other aspects to look at include how many brick-and-mortar locations a lender has in communities of color, Relman said. He suggested institutions “reach out to partner with community organizations” through homebuyer sessions and financial literacy campaigns, meeting regularly with potential borrowers.
“If you’re not building relationships for the express purpose of increasing the number of loans you make in underserved communities, you’re going to be targeted for enforcement,” Relman warned.