DOJ, CFPB file complaint, propose order against mortgage company for alleged redlining

On October 15, the CFPB and DOJ announced an enforcement action against a mortgage company, alleging it engaged in redlining against majority-Black neighborhoods in the greater Birmingham, Alabama area. According to the complaint, defendant’s marketing and sales practices discouraged people from applying for mortgage loans in these neighborhoods, allegedly violating ECOA, the CFPA, and the Fair Housing Act.

Defendant allegedly concentrated its retail loan offices in majority-white areas and directed less than 3 percent of its direct mail advertising to consumers in majority-Black neighborhoods from 2018 to 2020. The complaint further states that defendant’s home mortgage lending activities was disproportionately focused on white areas, with the company generating loan applications in Black and Hispanic neighborhoods at a rate below that of its peer institutions. Despite data showing these disparities, defendant allegedly failed to take substantial steps to address the redlining risk before October 2022, other than instructing loan officers not to discriminate.

Defendant issued a response to the settlement on its website, stating among other things that it was unaware of the allegations in the agencies’ complaint until after the settlement was reached; that the complaint “significantly mischaracterizes the matter at issue and appears to be intentionally inflammatory in nature”; and that certain of the language used in the complaint was “mutually rejected by the parties prior to settlement…which suggest bad faith by part of the government.”

The associated proposed consent order, if approved by the court, would require defendant to pay a $1.9 million civil penalty to the CFPB’s victims relief fund. Additionally, defendant would be required to provide $7 million for a loan subsidy program to offer affordable home purchase, refinance, and home improvement loans in the impacted areas. The program may include lower interest rates, down payment assistance, closing cost assistance, or payment of initial mortgage insurance premiums. Furthermore, defendant would be required to invest at least $1 million to open or acquire a new loan production office or full-service retail office in a majority-Black neighborhood in Birmingham. The company must also allocate at least $500,000 for advertising and outreach, at least $250,000 for consumer financial education, and at least $250,000 for partnerships with community-based or governmental organizations to serve neighborhoods previously allegedly redlined by the company. Finally, the agencies noted that defendant cooperated with the investigation.