Credit Unions Exploit Federal Tax Exemption to Buy Tax-Paying Community Banks - Not Subject to Community Reinvestment Act requirements

Nonprofit credit unions are buying record numbers of for-profit banks. Until recently, a nonprofit couldn't own a for-profit, but tax changes in recent years have changed the dituation.

As the Independent Community Bankers of America (ICBA) recently wrote: "Credit unions are increasingly exploit their federal tax exemption to acquire tax-paying community banks, the need for policymakers to re-examine their tax status is urgent. Action is needed now to preserve community banks and the communities that depend on them, ensuring the continued vitality of the relationship-based banking sector that has supported Main Street America for generations.

Credit unions pay no tax to operate the same business that was taxable the day before once they acquire a bank. As public scrutiny of these inappropriate deals and the number of credit union purchases of taxpaying community banks have raced past record highs, policymakers must protect local communities by ending the credit union tax exemption,” Rainey said. As more than 20% of bank deals this year have been credit unions leveraging their tax exemption to purchase banks, the media is taking note: 

• Axios: Why credit unions are buying banks.

• American Banker: Credit unions extend bank-buying spree.

• Credit Union Today: Citing exec pay, sports deals, 'lavish' HQs, bank group tells Congress there are new reasons to revoke CU tax exemption.

• Op-ed: Confessions of a credit union executive turned community banker.

• Op-ed: Stop letting credit unions buy community banks."

As Axios recently concluded:  Credit unions have many advantages over banks. They pay less in taxes and don't need to deliver profits to shareholders.They also have less of a regulatory burden — they aren't subject to Community Reinvestment Act requirements, for instance, and their National Credit Union Share Insurance Fund is in healthier shape than the FDIC's Deposit Insurance Fund.

• Axios: Why credit unions are buying banks.

• American Banker: Credit unions extend bank-buying spree.

• Credit Union Today: Citing exec pay, sports deals, 'lavish' HQs, bank group tells Congress there are new reasons to revoke CU tax exemption.

• Op-ed: Confessions of a credit union executive turned community banker.

• Op-ed: Stop letting credit unions buy community banks."

   

  Read the August 19, 2024 ICBA article.
  

Agencies Finalize Interagency Guidance on Reconsiderations of Value for Residential Real Estate Valuations

On August 20th, five federal regulatory agencies issued final guidance addressing reconsiderations of value (ROVs) for residential real estate transactions. The guidance advises on policies and procedures that financial institutions may implement to allow consumers to provide financial institutions with information that may not have been considered during an appraisal or if deficiencies are identified in the original appraisal. 

According to VivalLaw, the guidance will allow lenders and borrowers to request and provide additional information to supplement appraisals in assessing real estate value

The agencies are:

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 34
[Docket ID OCC-2023-0007]
 

FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Docket No. OP-1809]
 

FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 323
RIN 3064-ZA36
 

NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 722
[Docket ID NCUA-2023-0061]
 

CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Chapter X
[Docket No. CFPB-2023-0033]

ROVs are requests from a financial institution to an appraiser or other preparer of a valuation report to reassess the value of residential real estate. Deficiencies identified in valuations, either through an institution’s valuation review processes or through consumer-provided information, may be a basis for financial institutions to question the credibility of the appraisal or valuation report.

The guidance offers examples of ROV policies and procedures that a financial institution may implement to help institutions identify, address, and mitigate discrimination risk; describes the risks of deficient residential real estate valuations; and explains how financial institutions may incorporate ROV processes into risk management functions. The agencies finalized the guidance largely as proposed, with the addition of clarifying edits based on public comments received on the proposed guidance published in July 2023.

The guidance ultimately recommends that financial institutions should develop ROV policies that identify, address, and mitigate deficient values. The guidance recommends policies that:

• Consider ROVs as a possible resolution for consumer complaints or inquiries related to residential property valuations.

• Consider whether any information or other process requirements related to a consumer’s request for a financial institution to initiate an ROV create unreasonable barriers or discourage consumers from requesting the institution initiate an ROV.

• Establish a process that provides for the identification, management, analysis, escalation, and resolution of valuation-related complaints or inquiries across all relevant lines of business.

• Establish a process to inform consumers how to raise concerns about the valuation early enough in the underwriting process for any errors or issues to be resolved before a final credit decision is made.

• Identify stakeholders and clearly outline each business unit’s roles and responsibilities for processing an ROV request.

• Establish risk-based ROV systems that route the request to the appropriate business unit.

• Establish standardized processes to increase the consistency of consideration of requests for ROVs.

• Ensure relevant lending and valuation-related staff, inclusive of third parties (e.g., appraisal management companies, fee-appraisers, mortgage brokers, and mortgage servicers) are trained to identify deficiencies (including practices that may result in discrimination) through the valuation review process.

The FFIEC in its previous principles has stressed: "Valuation discrimination or bias can cause consumer harm, lead to violations of law, and have a detrimental impact on communities. In addition, valuation discrimination or bias could result in deficient and unreliable collateral valuations that undermine an institution’s credit decisions and negatively impact its safety and soundness."

Read the final guidance.

Read the July 19, 2024 VitalLaw article. 

August 28th Webinar on Grants Pass Decision & People with Disabilities

 

REGISTER TODAY Wednesday, August 28, 2024 2 - 3:30 PM ET Webinar: What the Grants Pass Decision Means for People with Disabilities

Join the Disability Rights Education and Defense Fund, the Bazelon Center for Mental Health Law, and the National Homelessness Law Center for an essential discussion on Wednesday, August 28, 2 - 3:30 PM ET on "What the Grants Pass Decision Means for People with Disabilities." On June 28, 2024, the U.S. Supreme Court ruled in a case called City of Grants Pass, Oregon v. Johnson (“Grants Pass”) that fining and jailing people experiencing homelessness for sleeping outside when they have nowhere else to go does not violate the cruel and unusual punishments clause of the constitution. The decision has given states and local governments the go ahead to make criminalization their primary, front-line response to homelessness and has had devastating effects on the civil rights of thousands of unhoused people across the United States. This webinar will: Provide an overview of the Grants Pass case and the disability-related “friend of the court” briefs filed in the case; Explain why people with disabilities are particularly at-risk of harm due to the increased criminalization of homelessness; Explore the relationship between the Grants Pass case, CARE Courts / civil commitments, and efforts to increase the institutionalization of disabled people; Critique the role of law enforcement and judicial authorities in responding to homelessness; and Provide an overview of advocacy tools and strategic thinking regarding potential next steps in advocacy. Speakers: Michelle Uzeta, Deputy Legal Director, Disability Rights Education and Defense Fund Monica Porter Gilbert, Policy & Legal Advocacy Attorney, Bazelon Center for Mental Health Law Siya Hegde, Staff Attorney, National Homelessness Law Center  REGISTER TODAY.  **ASL and CART (live captions) provided. Contact Diana Vega at dvega@dredf.org for any accommodations you may need by August 21st. Late requests may not be possible to fill.

HUD Approves Settlement with California Housing Providers Resolving Claim of Disability Discrimination

 

The U.S. Department of Housing and Urban Development (HUD) has entered into a Conciliation Agreement between Burbank Housing Management Corporation, Burbank Housing Development Corporation, BHDC Parkwood Apartments, LLC, Oak Ridge Apartments Associates LP, and James Perez, requiring the respondents to pay $41,500 in compensation to the complainant. The Agreement resolves allegations that the respondents violated Section 504 of the Rehabilitation Act of 1973 and the Fair Housing Act by discriminating against tenants with disabilities. Read the Agreement here.

The Fair Housing Act prohibits discrimination because of disability, including refusing to allow reasonable accommodations that would otherwise permit tenants with disabilities an equal opportunity to use and enjoy their housing. Section 504 of the Rehabilitation Act of 1973 (Section 504) prohibits the exclusion or discrimination of qualified individuals based on disability in any program receiving federal financial assistance, including from HUD.

The Agreement began with a complaint alleging that the Sonoma County, California, based housing providers interfered with the rights of tenants with disabilities to obtain reasonable accommodations, and that the respondents, who are receive HUD and US Department of Agriculture (USDA) funding, were in noncompliance with Section 504. The Respondents denied the allegations in the Complaint and agreed to settle the matter. The Conciliation Agreement does not constitute an admission of guilt by the Respondents and no determination has been issued by HUD about this.

Under the terms of the Agreement, the housing providers will pay $41,500 to the complainant. They will also ensure their reasonable accommodation policies are in compliance with the Fair Housing Act and Section 504 and that they process reasonable accommodation requests in a timely manner. Both HUD and USDA will monitor the Agreement.

People who believe they have experienced discrimination may file a complaint by contacting HUD's Office of Fair Housing and Equal Opportunity at (800) 669-9777 (voice) or (800) 877-8339 (Relay) or at hud.gov/fairhousing.

Read the July 2, 2024 HUD press release. 

HUD Charges Colorado Appraiser, Appraisal Management Company, and Lender with Race Discrimination

 

The U.S. Department of Housing and Urban Development (HUD) has charged multiple entities with housing discrimination for issuing a biased appraisal and then denying a refinance loan application in Denver, Colorado. HUD’s Charge against the appraiser, Maksym Mykhailyna; appraisal company, Maverick Appraisal Group; appraisal management company, Solidifi U.S. Inc.; and lender, Rocket Mortgage, LLC, alleges that the appraiser issued a discriminatory appraisal that undervalued a Black homeowner’s property on the basis of her race. The Charge further alleges that when the homeowner complained to Rocket Mortgage, Rocket Mortgage would only approve her refinance loan application based on the appraised value that she alleged was discriminatory. Read the Charge.

HUD’s Charge of Discrimination alleges that Maksym Mykhailyna and his appraisal company, Maverick Appraisal Group, issued an insupportably low appraisal of a duplex owned by a Black woman in a predominantly white area of Denver. Other recent appraisals of the same property had steadily increased in value, yet this appraisal resulted in a dramatic drop, despite the Denver market experiencing substantial growth in home values at that time. To reach that low number, the appraisal was rife with inaccuracies and unsupportable methodological choices (such as relying on comparable properties in neighborhoods with greater Black populations and excluding potential comparable properties in neighborhoods with greater white populations) that not only artificially lowered the appraised value but deviated from Mr. Mykhailyna’s own methodology and findings about the relevant neighborhood in appraising similar, nearby properties with White owners. Both Solidifi and Rocket Mortgage reviewed the appraisal report but failed to correct it despite several red flags. When the homeowner complained to Rocket Mortgage, she was told she could only proceed with her loan application based on the appraisal that she alleged was discriminatory; ultimately, her application was denied.

A US Administrative Law Judge will hear HUD’s Charge unless any party to the Charge 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 award damages to the homeowner for her losses as a result of the discrimination, injunctive relief, other equitable relief to deter further discrimination, payment of attorney fees, and civil penalties to vindicate the public interest. If a federal court hears the case, the judge may also award punitive damages to the homeowner.

Anyone who believes they are the victims of housing discrimination should contact HUD at (800) 669-9777 (voice) or (800) 927-9275 (TTY). Additional information is available at https://www.hud.gov/fairhousing.
 
HUD’s National Fair Housing Training Academy website contains a flowchart of the appraisal process as well as trainings related to combating and investigating appraisal bias.

HUD Charges Wisconsin Housing Provider with Discriminating Against a Tenant with Disabilities

The U.S. Department of Housing and Urban Development (HUD) on July 19, 2024 charged Tammy and Ramiro Estrada, the owner of a duplex in Appleton, Wisconsin, with violating the Fair Housing Act by refusing to grant a tenant with a disability a reasonable accommodation to allow the tenant to live with her assistance animals.

The Fair Housing Act prohibits discrimination because of disability, including the denial of reasonable accommodations. Individuals with disabilities have the right to reasonable accommodations when necessary for equal access to their home, including the use of assistance animals. Also, individuals are protected from coercion, intimidation, threats, or interference when they assert their fair housing rights or file a complaint with HUD.

HUD’s Charge alleges that the owners denied the tenant’s request by applying unlawful breed restrictions, fines, and fees to the request. They also interfered with the Complainant’s attempt to obtain a service dog and threatened them with eviction, eventually non-renewing their lease and citing the reasonable accommodation requests in the non-renewal notice. The tenants had to rent more expensive housing elsewhere.

A US Administrative Law Judge will hear HUD’s Charge unless any party to the Charge 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 award damages to the family for their losses because of the discrimination, injunctive relief and other equitable relief to deter further discrimination, payment of attorney fees, and civil penalties to vindicate the public interest. If the federal court hears the case, the judge may also award punitive damages to the family.

People who believe they are the victims of housing discrimination should contact HUD at (800) 669-9777 (voice) 800-927-9275 (TTY). Additional information is available at www.hud.gov/fairhousing. Housing providers and others can learn more about their responsibility to provide reasonable accommodations and reasonable modifications to individuals with disabilities here.

Read the July 19, 2024 HUD press release.

US Department of Justice Files Civil Rights Lawsuit Against Illinois Landlord for Sexually Harassing Tenants

 

The US Department of Justice (DOJ) filed a lawsuit on July 18, 2024 against Michael J. DeWitte, of Washington, Illinois, for sexually harassing female tenants and housing applicants in violation of the Fair Housing Act. The lawsuit, filed in the U.S. District Court for the Central District of Illinois, alleges that, since at least 2002, DeWitte harassed female tenants and applicants with unwelcome sexual harassment including sexual contact and comments about their physical appearances; offers to strip for female tenants; removing his pants while giving a tour to a female housing applicant; exposing his genitals to female tenants; asking female tenants on dates; requesting sex in exchange for reduced rent or other housing benefits; and evicting female tenants when they did not give in to his sexual advances. The lawsuit seeks monetary damages to compensate those harmed by the alleged harassment, civil penalties to vindicate the public interest, and a court order barring future discrimination.

Anyone who believes that they may have been victims of sexual harassment or other types of housing discrimination at rental properties owned or managed by Michael DeWitte, or who have other information that may be relevant to this case, may contact the Justice Department by calling the U.S. Attorney’s Office for the Central District of Illinois at 309-671-7019 or 833-591-0291, and emailing USAILC.Civil.Rights@usdoj.gov or FairHousing.USAILC@usdoj.gov.

The Justice Department’s Sexual Harassment in Housing Initiative is run by the Civil Rights Division, in coordination with U.S. Attorneys’ Offices. The initiative address es and raises awareness about sexual harassment by landlords, property managers, maintenance workers, loan officers, and others who have control over housing. Since beginning the initiative in 2017, the department has filed 44 lawsuits alleging sexual harassment in housing and recovered over $17 million for victims of such harassment. The Civil Rights Division is committed to protecting people from sexual misconduct.

Read the July 18, 2024 DOJ release.