Fair Lending News:

CFPB Releases 2022 Fair Lending Annual Report to Congress

On June 26, 2023, the Consumer Finance Protection Bureau(CFPB) released its Fair Lending Annual Report to Congress, describing its fair lending activities in enforcement and supervision; guidance and rulemaking; interagency coordination; and outreach and education for calendar year 2022.

In 2022, the CFPB’s fair lending work centered on the consumers and communities most affected by unlawful discrimination:

• Working with our federal and state partners to address redlining as well as confronting deep-seated discrimination in the home appraisal industry. 
• The CFPB also released several reports shining a light on factors that may influence fair access to credit, including how medical debt affects tens of millions of consumers’ credit profiles, how people in under-resourced rural areas struggle to access financial services, and the challenges faced by justice-involved individuals and families.
• We also issued several rules and guidance documents reaffirming the importance and applicability of fair lending protections for prospective applicants, applicants for credit, and existing account holders. Through our enforcement and examination activity, interpretive rules and advisory opinions, circulars, and other tools, we continue to make clear that fair lending must be a top priority for all financial institutions.

The Fair Lending Annual Report to Congress fulfills the CFPB’s statutory responsibility to, among other things, report annually to Congress on public enforcement actions taken by other agencies with administrative enforcement responsibilities under the Equal Credit Opportunity Act (ECOA), and assessments of the extent to which compliance with ECOA has been achieved. It also fulfills the statutory requirement that the CFPB, in consultation with HUD, report annually on the utility of the Home Mortgage Disclosure Act’s requirement that covered lenders itemize certain mortgage loan data.

Through 2023 and beyond, the CFPB will continue to stand up for those consumers and small businesses who are the least resourced to fight back against exploitation.

As noted in the Future of Fair Lending section at the end of the Report, we are focused especially on the increased use of advanced and emerging technologies in financial services. Consumers and small businesses are not well-resourced to fight back against—and may not even know they are subject to—algorithmic bias, digital surveillance and data harvesting, dark patterns, and advanced technologies that are black boxes. The CFPB has increased its expertise in data science and analytics to ensure that we can identify fair lending violations at each stage of the credit lifecycle. And we will continue to take a whole-of-government approach to protect consumers from harmful uses of automated systems marketed as artificial intelligence. As the CFPB reiterated in conjunction with the release of our joint statement with the Department of Justice, Federal Trade Commission, and U.S. Equal Employment Opportunity Commission, we will hold creditors and service providers accountable for fully complying with fair lending and other federal consumer financial laws, regardless of the technology they choose to use.

The CFPB also continues to fight against bias in home appraisals and redlining. Families and entire communities are harmed by biased, inaccurate appraisals, as well as geographic discrimination, or redlining. Whether it takes the form of excluding neighborhoods with certain demographics from mainstream credit or targeting them with predatory products, the CFPB is combatting these unlawful practices to achieve meaningfully restorative outcomes for the affected consumers and communities.

The CFPB remains committed to protecting individuals, small businesses, and communities from discrimination, holding institutional and individual bad actors accountable, and ensuring robust and comprehensive remedies for violations of the laws under our jurisdiction. In the years to come, we look forward to advancing our work to ensure a fair, equitable, and nondiscriminatory credit market, with equal economic opportunity for all consumers and their communities.

 

HUD Charges New York Corporation and Associated Entities for Targeting Black Caribbean Homeowners in Fraudulent Mortgage Scam

HUD has charged multiple entities and individuals related to the Homeowner Assistance Services of New York (HASNY) with housing discrimination for perpetrating a scheme to deceive distressed homeowners into forfeiting title to their homes. HUD’s charge alleges that HASNY – plus six individuals, Springfield Realty of New York, Inc., Martin Development and Management, LLC, Launch Development, LLC, 272 Milford Street, LLC, Advill Capital, LLC, and Petermark II, LLC - targeted New York City homeowners in violation of the Fair Housing Act. Read the Charge. 

The Charge, filed on behalf of seven homeowners, alleges that HASNY and its associates targeted the homeowners for fraudulent mortgage and foreclosure prevention assistance by filing illegitimate liens and using telemarketing to convince homeowners to engage with HASNY for refinance assistance. After the homeowners accepted their offer of assistance, they used false promises of legal assistance, reassurances, and outright lies to convince the homeowners to sign documents that unknowingly sold their homes to Martin Development, LLC and Launch Development, LLC, which resulted for most forced them to vacate their homes. HASNY’s actions were disproportionately concentrated in neighborhoods which had a high majority of persons of color, especially Blacks and of Caribbean descent. They also used “affinity marketing” to gain the trust of elderly, vulnerable, and distressed homeowners by having telemarketers use their shared national origin and cultural practices to build trust with the homeowners. 

The U.S. Department of Justice previously criminally charged 3 of the men, as well as several other HASNY employees, with bank and wire fraud crimes from the conduct alleged in the Charge. Two respondents pleaded guilty and one was convicted after a jury trial and later disbarred. 

A U. S. Administrative Law Judge will hear HUD’s Charge unless any party elects to have the case heard in federal district court. If an administrative law judge finds, after a hearing, that discrimination has occurred, the judge may impose civil penalties and/or award damages to the homeowners for their losses as a result of the discrimination, injunctive relief, other equitable relief, as well as payment of attorney fees. In addition, the judge may impose civil penalties to vindicate the public interest. If a federal court hears the case, the judge may also award punitive damages to the homeowners. 

Read the June 13, 2023 HUD press

Affordable Housing News: 

Mortgage Assistance Program Expansion Estimated to Help More Than 1,000 Additional Marylanders Stay in Their Homes. 

Since the Homeowner Assistance Fund Program Began in 2021, the Maryland Department of Housing and Community Development (MDHCD) has assisted over 11,000 Marylanders residents behind on payments and housing costs, including 6,000 who were facing foreclosure. The Department has expanded the program to add an additional option for mortgage servicers to provide eligible homeowners with relief as interest rates have risen and affected the affordability of some loan modifications. The program now is able to fund up to six months of forward payments for eligible applicants, and is estimated to help more than 1,000 additional Marylanders. 

The Homeowner Assistance Fund offers legal assistance, loan modifications with payment of delinquent mortgages, grants to avoid displacement due to property taxes, association and water and sewer fees, and other housing related costs. So far, the program has provided more than $125 million to eligible homeowners, with an average of $17,100 of assistance for each household. No additional application is required to be considered for the new forward payment option, and the Department is also reviewing past applications to determine if those homeowners would be eligible for the forward payment option and reaching out to them to offer assistance. 

For detailed information on eligibility and to apply for assistance: homeownerassistance.maryland.gov. The HAF program was established by the American Rescue Plan Act enacted in 2021 to help homeowners experiencing financial hardship after January 21, 2020. The Maryland Department of Housing and Community Developm​ent was awarded a total of $248 million to administer through the program. 

Contact Brandi Bottalico, Office of Public Information - brandi.bottalico@maryland.gov.

 Mortgage Lending Discrimination

Widespread Discriminatory Housing Appraisals Persist in the U.S.

A large number of Black property owners hold that white appraisers are using their race to determine the worth of their homes. About 97% of appraisers in the U. S. are white, according to the Bureau of Labor Statistics. The National Community Reinvestment Coalition (NCRC) and other advocates report the result is widespread appraisal discrimination. In 2022, the NCRC released a report finding that the average appraiser gave a value that was $7,000 higher to the same home owned by a white rather than a Black.

In one high-profile case, the Baltimore-area home of Dr. Nathan Connolly and Dr. Shani Mott was valued at nearly $300,000 more when they performed a “whitewashing experiment” in 2021, removing family photos and asking a white colleague to stand in for them. The couple has filed a lawsuit in Maryland, and the U. S. Department of Justice unusually issued a statement of interest in their case, just as they did last year with the case of Mr. Austin and Ms. Tate-Austin.

Redlining, a Depression-era practice that denied mortgages to people of color in certain neighborhoods, continues to drive down home values in Black neighborhoods, and today, racism and discrimination are still inextricably entwined in housing values.

A recent possibly discriminatory example is the case of Terry Horton who has been a Cincinnati landlord for over 10 years. He has rented to single mothers who rely on Section 8 housing assistance to pay their rent, and he and all of his tenants are Black. To free up cash for buying a new apartment building, he wanted to refinance his three-unit rental property in Cincinnati's North Avondale neighborhood, near Xavier University and with a roughly $39,000 median family income. His lender estimated the property’s value at around $500,000. But an appraiser declared his property worth only $359,000.

Horton believes that the first appraiser, who is white, discriminated against both him and his tenants because of their race - all were whom met the appraiser. Two more appraisals of  Horton’s property had higher values, though by the time Horton reapplied for a loan based on the later values, interest rates had climbed so that it was not advisable to refinance his mortgage. “It was completely devastating,” Horton said. “It rips the whole bottom out when you come to the realization that because of the color of your skin, they’re devaluing your property.”

He recently filed a complaint to HUD with the National Community Reinvestment Coalition, which works for increased wealth in low-income communities. The complaint cites multiple methodological and factual errors in the first appraisal done by Brent Martin of Martin Appraisal Company. Martin Appraisal Company was subcontracted by Appraisal Nation, an appraisal management company used by Horton’s lender, Stratton Equities.

According to the complaint, Martin underreported the size the property by over 500 square feet, selected nearby properties of comparable size and quality within a smaller size bracket than Horton’s property, underreported the number of bedrooms, and underestimated Horton’s monthly rental income by over $450. After Horton disputed, Appraisal Nation refused to change its $359,000 valuation. 

HUD confirmed receipt of the complaint and has begun processing it. Should HUD determine that there is cause to suspect discrimination, the case could be moved to a HUD administrative or to a federal judge.

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Read the March 18, 2023 New York Times article.

Read the February 27, 2023 NCRC article.

 

 Mortgage Inequities

New Research Finds Black Seniors are Disproportionately Denied Mortgage-Based Loans

Many seniors have built up considerable wealth in their homes. Some 78% of 65-to-74-year-olds own their homes, as do 82% of those 75 and older. As of 2019, 47% of homeowners’ median net worth was in their home equity:  58% percent for Hispanic homeowners and 59% for Black homeowners.

The Urban Institute's just-released research report found that the Home Equity Conversion Mortgage (HECM) option tapping home equity could financially help Black senior homeowners, but they are disproportionately denied access at every age and income level. Black HECM applicants experience higher denial rates than white applicants for all age groups, and this denial gap persists at all loan amount levels across all neighborhood incomes.

Using 2021 HMDA data, it was found that the denial rate for Black HECM applicants is the highest across all age groups: 21.5% of Black applicants ages 62 to 74 are denied, compared with 12.0% for white applicants. The overall denial rates for applicants over 75 decrease for white, Black, and Hispanic borrowers, but the Black-white denial gap persists and is 6.9 percentage points. 

Regarding loan amount and neighborhood income, Black applicants persistently experience higher denial rates. For Black applicants with loan amounts under $100,000, 36.4% living in low- and moderate-income neighborhoods are denied HECMs, compared with 19.5% of white applicants. This gap continues even for those living in upper-income neighborhoods: 14.7% of Black applicants with $200,000-$300,000 loan amounts are denied, compared with 9.3% of white applicants. Another study (Lindsey-Taliefero and Kelly, 2021), using 2019 HMDA data had consistent findings that Black applicants are more likely to be denied a reverse mortgage after controlling for age, gender, and income. 

One reason Black applicants have higher denial rates could be financial precarity associated with limited liquid wealth and postretirement income. In 2021, 33.8% of Black HECM applicants were denied because of insufficient cash. The median liquid net worth for Black homeowners over 62 is only $3,500, compared with $104,000 for white homeowners. Only 29.3% of Black homeowners over 62 have individual retirement accounts compared to white homeowners' 54.8%. Although HECMs provide flexible payment plans, they have high up-front costs and high annual mortgage insurance premiums (MIPs). The average Black applicant cannot afford these up-front costs. For a Black homeowner HECM applicant with a median value of $125,000, the 2% up-front MIPs plus the costs for home appraisal and counseling requires the applicant to pay at least $3,175 at closing, excluding other costs such as the annual MIPs and third-party charges. But the median liquid net wealth owned by a Black senior homeowner is only $3,500. For a white owning a home with a $220,000 median value, this cost structure incurs $5,075 in the first year, far less than the $104,000 median liquid wealth of white senior homeowners.

Another reason for the higher denial rates is that Black senior homeowners have much less housing wealth in late life than white senior homeowners. Among Black applicants over 62, 25.0% of all denials are because of insufficient collateral. Research shows that Black homeowners are more likely than white homeowners to have mortgage debt, even in late life. This mortgage burden limits the amount of collateral value Black households could tap to qualify for a HECM. 

Because Black borrowers tend to have low incomes and low credit scores attributable to structural barriers and historic discrimination, the financial assessment further decreases the amount of home equity Black senior homeowners can borrow, making them less likely to tap home equity and less likely to get approved for a HECM loan. 

The report sums that homeowners of color are disproportionately "denied for these loans because of decades of historical and structural racism in our financial system. Structural barriers in the mortgage finance system make it less likely for Black homeowners to refinance when interest rates are low, which increases their debt burden over time (Gerardi, Willen, and Zhang 2023). In addition, Black people are disproportionately likely to have thin or no credit files, increasing the likelihood of escrowing future property tax and insurance payments required in the financial assessment, which, in turn, limits the amount of home equity they can borrow."

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Read the February 23, 2023 Urban Institute research brief.

Read the January 14, 2023 Urban Institute report.

Read the February 23, 2023 Research Mortgage Daily article.

GE to Pay $1.5 Billion U.S. Fine overSubprime Mortgage Fraud.

April 12, 2019. General Electric Co will pay a $1.5 billion civil fine to resolve the US Department of Justice (DOJ) examination of defective subprime mortgages from its former WMC Mortgage unit before the 2008 global financial crisis. DOJ said the agreement resolves claims that GE concealed the poor quality of the loans and WMC’s lax fraud controls when packaging the loans into residential mortgage-backed securities that it then sold to misled investors. WMC was purchased by GE’s finance unit, General Electric Capital Corp, in 2004, and issued over $65 billion of mortgage loans in the next three years. DOJ said WMC overstated the quality of a majority of loans it packaged into residential mortgage-backed securities, and its fraudulent practices resulted in billions of dollars of investor losses. https://www.reuters.com/article/us-ge-settlement/ge-to-pay-1-5-billion-u-s-fine-over-crisis-era-subprime-mortgages-idUSKCN1RO233.

RECENT FAIR HOUSING NEWS

Same-Sex Couples 73% More Likely to be Denied Mortgage. The just-published analysis of 2009-2015 national mortgage date compared same-sex couples' experiences to that of heterosexual couples with the same financial worthiness, according to an analysis of national mortgage data from 1990 to 2015. The researchers say their findings signal a need to include sexual orientation as a protected class under federal lending laws. 

Published in the Proceedings of the National Academy of Sciences, the study also found that when same-sex couples were approved for a home loan, they were given inferior terms. They paid an average of 0.2% more in interest and fees, which totals annually up to as much as $86 million. https://www.washingtonpost.com/business/2019/04/17/same-sex-couples-applying-mortgage-face-higher-rejection-worse-rates-study-finds/?noredirect=on&utm_term=.c072a491e8cb.

State Farm Agrees to Pay $250 Million, Avoids Racketeering Trial. The payment is to customers who claimed the company tried to rig the Illinois justice system to wipe out a $1 billion jury verdict from 19 years ago. The largest U.S. auto insurer apparently led an effort to get a judge friendly to its cause for the Illinois Supreme Court, secretly funding Judge Lloyd Karmeier’s 2004 election campaign by giving money through advocacy groups that were not required to disclose donors. Under the federal Racketeer Influenced and Corrupt Organizations Act, any damages would have been tripled. A judge granted preliminary approval to the accord and set a final fairness hearing for December. https://www.insurancejournal.com/news/national/2018/09/04/500127.htm.

IN THE LATEST FAIR HOUSING NEWS:

Providence, RI Considers Banning Landlords Who Refuse Section 8 Vouchers. Read the March 21, 2019 WPRI.com article.

New Study Finds that Residents of  Historically Redlined Neighborhoods are Over Twice as Likely to go to the Emergency Room (ER) for Asthma. People of color are far more likely to breathe polluted air. Read the May 23, 2019 Citylab article.

Pattern Reversed in Diversifying Neighborhoods: The Decline in Racially Segregated Neighborhoods Between 2000-2017 is Caused by Whites Moving into Minority Areas. Read the April 27, 2019 New York Times article. Read the May 1, 2019 New York Times analysis article.

New Report Discovers that America's Most Polluting Incinerators Disproportionately Affect Low-Income Neighborhoods and Communities of Color. Read the report. Read the May 21, 2019 London Guardian article. Read the May 21, 2019 Pacific Standard article.

Multiple Complaints of Racial Discrimination in Harford County. . Read the April 1, 2019 Atlanta Black Star article. Read the June 1, 2019 Baltimore Sun article.

Study by the Poverty & Race Research Action Council (PRRAC) Finds that “Immigrant Integration” – New Immigrants Inclusion in American Society – is Endangered by their Housing and School Segregation. Immigrant Integration and Immigrant Segregation. Read the April 2019 PRRAC report.