FTC, Pennsylvania Lender Settle Race Bias Charges; Borrowers' Credit Risk Didn't Warrant Higher Loan Costs, Say Feds

In Horsham, Pennsylvania, the Philadelphia Inquirer reports:

• Gateway Funding Diversified Mortgage Services L.P., a Horsham mortgage lender, has settled federal allegations that it charged African Americans and Hispanics higher prices for loans than it did white borrowers, the government said yesterday.

• "We are not admitting that we did it," said Bruno Pasceri, president and chief executive officer of Gateway. "I can tell you we certainly do not discriminate against anybody. I'm glad it's over."

***

• The FTC found that Gateway loan officers charged several thousand African American and Hispanic consumers more - in higher interest rates and higher up-front charges - than was warranted, given the borrowers' credit risk.

• The settlement payment was set at $200,000, even though the FTC had alleged $2.9 million in damages to consumers. The FTC said it allowed the lower payment because of Gateway's "inability to pay."

***

• Irv Ackelsberg, a consumer attorney with Langer, Grogan & Diver P.C. in Center City, said millions of borrowers were paying more than they should be, feeding the nation's foreclosure problem.

For more, see Horsham lender settles discrimination case.

From the Federal Trade Commission in the matter of FTC v. Gateway Funding:

• Complaint For Permanent Injunction and Other Equitable Relief,
• Stipulated Final Judgment and Order For Permanent Injunction and Other Equitable Relief,
• FTC News Release.

Go here, Go here, and go here for other posts on alleged race bias in real estate transactions. DiscriminationPredatoryLendingAlpha

Ratings Agencies Face Charges Of Civil Rights Violations In Complaint Filed With HUD; Actions Allegedly Facilitated Discriminatory Subprime Lending

Syndicated real estate columnist Kenneth Harney recently reported:

• In what is apparently the first legal action of its kind, an association of community-based organizations has filed a federal civil rights complaint against two of the three largest Wall Street ratings agencies,(1) charging that their inflated ratings on subprime mortgage bonds disproportionately caused financial harm to African-American and Latino home buyers across the country.

• The complaint,(2) filed by the National Community Reinvestment Coalition, alleges that Moody's Investor Services and Fitch Ratings Ltd. enriched themselves by assigning high ratings to bonds backed by mortgages "that were designed to fail" because of "unfair payment terms and insufficient borrower income levels."

For more, see Civil rights complaint filed against rating agencies.

See also, NCRC press release: NCRC Files Civil Rights Complaint Against Fitch and Moody’s (Civil penalties and equitable relief sought for consumers and communities injured by rating agencies’ role in foreclosure crisis).

Go here, Go here, and go here for other posts on alleged race bias in real estate transactions.

(1) According to the column, a third rating agency with heavy involvement in the subprime boom, Standard & Poor's Corp., was not named in the complaint, but has been "in discussions" with the coalition, according to David Berenbaum, the group's executive vice president. If the discussions with S&P prove "unsatisfactory," he said, the company could be the subject of a separate action, the column states.

(2) The coalition reportedly filed its complaint with the Department of Housing and Urban Development's fair housing and equal opportunity unit. After a review, the department could either dismiss the allegations or refer the case to the Justice Department of the incoming Obama administration for litigation next year. If HUD fails to respond adequately, the coalition says it may file a federal civil lawsuit. DiscriminationPredatoryLendingAlpha

NY AG Scores Big Win As Supremes Reverse Lower Courts, Give Go-Ahead To States To Pursue Probes Of National Banks For Lending Discrimination

The Wall Street Journal reports:

• In a surprise win for state regulators over the banking industry, a divided U.S. Supreme Court on Monday gave New York prosecutors the green light to investigate national banks for lending discrimination. The high court, in a 5-4 opinion by Justice Antonin Scalia, said federal banking regulations didn't pre-empt the ability of states to enforce their own fair-lending laws.

• The ruling was a win for the New York attorney general's office, which had been seeking to investigate the banks' residential real-estate lending practices since 2005.(1) Scalia said New York Attorney General Andrew Cuomo couldn't issue executive subpoenas to the banks but could bring enforcement actions against them in court. The decision was a surprise because decades of U.S. Supreme Court rulings have favored federal banking regulation at the expense of state regulation. [...] Cuomo said the ruling "reaffirms the vital role state attorneys general play in protecting consumers from illegal and improper practices by our country's biggest and most powerful banks."

***

• The divided ruling didn't split along the court's normal ideological lines. Justice Clarence Thomas, whose views often align with Scalia's, wrote the court's dissent.(2)

***

• All of the other 49 states backed New York in the case, saying they have historically had the power to enforce consumer-protection laws against national banks. That power, the states said, was particularly important now because of the widespread mortgage abuses that contributed to the nation's economic crisis.

For the whole story, see US High Court: States Can Probe Natl Bank Lending (subscription required; if no subscription, try here, then click link for the story).

For the court's ruling, see Cuomo v. Clearing House Assn., L.L.C., Docket # 08-453 (June 29, 2009).

(1) According to the story, former New York Attorney General and Governor Eliot Spitzer launched the probe, saying mortgage data showed black and Hispanic borrowers received a larger percentage of high-interest home loans than white borrowers. Spitzer asked several banks, including Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc., to voluntarily produce non-public information about their mortgage-lending practices in New York. In response, the federal Office of the Comptroller of the Currency and a consortium of national banks each sued to block Spitzer's investigation.

(2) Justice Scalia was actually the swing vote in this ruling, aligning himself with Justices Stevens, Souter, Ginzburg, and Breyer, the four justices on the court widely considered to be politically "left of center". DiscriminationPredatoryLendingAlpha

NAACP Targets Wells Fargo, HSBC In Separate Class Actions Alleging Violations Of Fair Housing, Civil Rights, Equal Credit Opportunity Acts

The NAACP announces:

• [Friday], the NAACP filed separate lawsuits in U.S. District Court in California against two of the country’s largest lenders, Wells Fargo, and HSBC. These lawsuits allege systematic, institutionalized racism in sub-prime home mortgage lending.(1) The remedies being asked for in the lawsuit include measures for increased accountability and transparency.

For more, see NAACP Files Landmark Lawsuit Today Against Wells Fargo and HSBC (Remedies would benefit millions of potential borrowers).

For the lawsuits, see:

• NAACP v. Wells Fargo Bank & Wells Fargo Home Mortgage,
• NAACP v. HSBC Mortgage & HSBC Bank.

Go here, Go here, and Go here for other posts on alleged discrimination in real estate transactions.

(1) According to the NAACP press release, these two new lawsuits raise the same claims as pending litigation by the NAACP against other mortgage industry leaders. Lenders named in this pending litigation include Accredited Home Lenders, Inc., Ameriquest Mortgage Co., Bear Sterns Residential Mortgage Corp. d/b/a Encore Credit, Chase Bank USA, Citimortgage, First Franklin Financial Corp., First Tennessee Bank d/b/a First Horizon National Corp., Fremont Investment & Loan, GMAC Mortgage Group, LLC, GMAC ResCap, Long Beach Mortgage and SunTrust Mortgage. DiscriminationPredatoryLendingAlpha

City Of Memphis Joins Shelby County; Gives Go-Ahead For Discrimination Suit Targeting Major Home Lenders

In Memphis, Tennessee, Memphis Commercial Appeal reports:

• City Council members on Tuesday approved a resolution authorizing the city to file suit against national lenders who they say created a foreclosure crisis in Memphis and Shelby County that disproportionately affected African-Americans.

• The resolution alleges lenders engaged in "deceptive" and "discriminatory" lending practices targeted at the black community and "other select groups" that caused "substantial" and "irreparable" harm to neighborhoods and the governments.

• The Shelby County Commission recently approved a similar resolution (see Shelby commissioners authorize lawsuits against mortgage lenders), claiming the foreclosure epidemic has devastated neighborhoods, slashed property values, eroded the tax base and drained local government coffers because of a host of direct and indirect costs.

• "They have caused property values to plummet," said Webb Brewer from Memphis Area Legal Services, which is working with the city and county on the lawsuit. "As the property values go down, the property taxes go down. There are a lot of increased costs, like police and fire protection."

For more, see Council says OK to city lawsuit (Resolution alleges lenders targeted black community).

Go here, Go here, and Go here for other posts on alleged discrimination in real estate transactions. DiscriminationPredatoryLendingAlpha

Illinois Charges Wells Fargo Of Race Bias In Home Loan Originations; Minority Neighborhoods Became "Ground Zero For Subprime Lending" Says State AG

In Chicago, Illinois, the Chicago Sun Times reports:

• Illinois filed a lawsuit on Friday against Wells Fargo & Co. accusing it of discriminating against black and Latino homeowners by employing racially biased lending practices.(1) San Francisco-based Wells Fargo & Co. allegedly sold high-cost subprime mortgage loans to minorities while white borrowers with similar incomes received lower-cost loans, according to the lawsuit, filed in Cook County Circuit Court by Illinois Attorney General Lisa Madigan. “As a result of its discriminatory and illegal mortgage-lending practices, Wells Fargo transformed our cities’ predominantly African-American and Latino neighborhoods into ground zero for subprime lending,” Madigan said.

***

• Madigan said the lawsuit was the first in the nation filed by an attorney general against Walls Fargo — though Baltimore and the NAACP have filed a similar suits.

For more, see State sues Wells Fargo for alleged loan bias.

For the Illinois Attorney General press release, see Madigan Sues Wells Fargo For Discriminatory And Deceptive Mortgage Lending Practices (Illinois Attorney General Alleges Lender Steered African-Americans, Latinos Into Subprime Loans).

For the lawsuit, see People v. Wells Fargo And Company, et al.

(1) The complaint alleges violations of the Illinois Human Rights Act, the Illinois Fairness in Lending Act, the Illinois Uniform Deceptive Trade Practices Act, and the Illinois Consumer Fraud and Deceptive Business Practices Act, and asks the court to rescind all contracts entered into between Wells Fargo and Illinois consumers by the use of methods and practices declared unlawful and to grant full restitution to the consumers. DiscriminationPredatoryLendingAlpha ghetto loans

Racial Steering, Bonuses For Referring Prime Borrowers To Subprime Loans Among Accusations By Ex-Wells Fargo Employees In Discriminatory Lending Suit

The New York Times reports:

• As she describes it, Beth Jacobson and her fellow loan officers at Wells Fargo Bank “rode the stagecoach from hell” for a decade, systematically singling out blacks in Baltimore and suburban Maryland for high-interest subprime mortgages. These loans, Baltimore officials have claimed in a federal lawsuit against Wells Fargo, tipped hundreds of homeowners into foreclosure and cost the city tens of millions of dollars in taxes and city services.

***

• Ms. Jacobson’s account and that of the other loan officer who gave an affidavit, Tony Paschal, both of whom have left Wells Fargo, provide the first detailed accusations of deliberate racial steering into subprimes by one of the nation’s top banks.

***

• The affidavits of the two loan officers seem to bolster Baltimore’s lawsuit. Mr. Paschal, who is black and worked as a loan officer in Wells Fargo’s office in Annandale, Va., from 1997 to 2007, offers a sort of primer on Wells Fargo’s subprime marketing strategy by race. [...] “They referred to subprime loans made in minority communities as ghetto loans and minority customers as ‘those people have bad credit’, ‘those people don’t pay their bills’ and ‘mud people,’ ” Mr. Paschal said in his affidavit. [...] “The company put ‘bounties’ on minority borrowers,” Mr. Paschal said. “By this I mean that loan officers received cash incentives to aggressively market subprime loans in minority communities.” Both loan officers said the bank had given bonuses to loan officers who referred borrowers who should have qualified for a prime loan to the subprime division.

For more, see Bank Accused of Pushing Subprime Deals on Blacks.

Go here, Go here, and Go here for other posts on alleged discrimination in real estate transactions. DiscriminationPredatoryLendingAlpha

Wells Whistleblowers Call Lending Practices "Riding The Stagecoach To Hell" In Testimony Claiming Blacks Were Targeted In Baltimore City Subprime Suit

In Baltimore, Maryland, The Daily Record reports:

• The city of Baltimore has beefed up its groundbreaking racial discrimination lawsuit against Wells Fargo with sometimes shocking testimony from a pair of the megabank’s former subprime-loan officers. The two whistleblowers claim their co-workers targeted black ZIP codes and churches, used software to “translate” marketing materials into African-American vernacular, and referred to subprime loans in minority communities as “ghetto loans” and to borrowers as “mud people.”

• Their declarations were attached to an amended complaint filed Monday in U.S. District Court in Baltimore. The loan officers, who worked for Wells Fargo in the Baltimore-Washington area from the late 1990s until 2007, also alleged bank employees deceptively steered prime borrowers into subprime loans for their own financial benefit and joked that they were “riding the stagecoach to Hell.”

• The city also filed declarations from four city residents who live near Wells Fargo’s foreclosed properties. They complained of squatters, rats and burst pipes, all of which have required attention from some city department. It cites 10 studies, including one specific to Baltimore, which studied reverse-redlining in black neighborhoods; and updated the foreclosure data to include the first part of 2009.

For more, see Ex-workers allege race-based loan approach at Wells Fargo (if link expires, try here for the full story, courtesy of findarticles.com).

Go here, Go here, and Go here for other posts on alleged discrimination in real estate transactions. DiscriminationPredatoryLendingAlpha

NY AG Settles With Two Mortgage Brokerages, Files Suit Against Another For Alleged Race-Based, Discriminatory Lending Practices

From the Office of the New York Atttorney General:

• Attorney General Andrew M. Cuomo [Monday] announced results of a landmark investigation with the New York State Department of Banking into discriminatory practices in the mortgage brokerage industry.

• In the first law enforcement action of its kind in New York State, two mortgage brokerage companies – HCI Mortgage and Consumer One Mortgage – will collectively pay $665,000 in restitution to approximately 455 Black and Latino borrowers who were illegally charged higher fees than similarly-situated White borrowers. The companies collectively operate more than 20 branches throughout New York State.

• The Attorney General also filed a lawsuit in federal district court against another mortgage brokerage company – U.S. Capital Funding, LLC – that engaged in similar discriminatory practices.(1)

Go here for the NY AG press release: Attorney General Cuomo Announces Groundbreaking Agreement With Major Mortgage Brokers Who Discriminated Against Minority Customers (HCI and Consumer One to Pay Over $650,000 in Restitution After Illegally Charging Black and Latino Customers Higher Brokerage Fees; Cuomo Sues U.S. Capital Funding for Similar Discriminatory Practices).

Go here, Go here, and Go here for other posts on alleged race bias in real estate transactions.

(1) According to the NY AG press release, unlike HCI and Consumer One, U.S. Capital Funding failed to agree to provide appropriate relief to victims. Consequently, the Attorney General filed a lawsuit seeking restitution for over 100 minority borrowers and a court order requiring the company to cease its discriminatory practices. DiscriminationPredatoryLendingAlpha

City Of Baltimore, Wells Fargo Slug It Out As Lender Seeks Dismissal Of Reverse Redlining Lawsuit

In Baltimore, Maryland, The Maryland Daily Record reports:

• Attorneys for the city of Baltimore and Wells Fargo traded arguments in federal court about the viability of the city’s first-of-its-kind “reverse-redlining” lawsuit against the nation’s biggest consumer bank. The San Francisco-based bank has asked the judge to dismiss the case, in which the city claimed Wells Fargo systematically targeted Baltimore’s black neighborhoods and borrowers for high-rate subprime loans — a practice the city alleged is illegal under the federal Fair Housing Act.

For more, see Attorneys spar in 'reverse-redlining' suit against Wells Fargo (when link expires, try here).

See also, The Baltimore Sun: City says Wells Fargo mortgages were predatory (Bank says complaint doesn't prove that subprime loans hurt black neighborhoods).

For the lawsuit alleging predatory lending filed by the City of Baltomore, see:

• Mayor and City Council of Baltimore v. Wells Fargo Bank, N.A., et al. (approx 9.74 MB). DiscriminationPredatoryLendingAlpha

Shelby County Commisioners Give Go-Ahead For Filing Race-Based, Predatory Mortgage Suit Against Major Lenders

In Memphis, Tennessee, Memphis Commercial Appeal reports:

• Shelby County commissioners approved a resolution [last week] authorizing the county to file suit against the national lenders who, officials say, gave out risky, high-interest rate loans and enabled a foreclosure crisis in Shelby County.

• The resolution alleges that these major national lenders engaged in "deceptive" and "discriminatory" lending practices targeted at the black community. And the resulting foreclosure epidemic has destabilized neighborhoods, eroded property values and damaged the tax base -- costing county and Memphis city government millions in tax revenues.

***

• Webb Brewer, the director of advocacy for Memphis Area Legal Services, who will help the city and county prosecute, said the 10 or so national banks that gave out the most predatory loans will most likely be named.

For more, see Shelby commissioners authorize lawsuits against mortgage lenders (Resolution says loans targeted minorities, forced foreclosures).

See also, Memphis Daily News: Details Coming Soon for Lender Lawsuit.

Go here, Go here, and Go here for other posts on alleged discrimination in real estate transactions. DiscriminationPredatoryLendingAlpha

Race Bias In Twin Cities' Mortgage Lending, Says Report

In Minneapolis, Minnesota, the Twin Cities Daily Planet reports:

• Lenders discriminate. Housing is segregated. Communities of color are hit harder by the foreclosure crisis than anyone else. That’s the ugly face of racial discrimination in the Twin Cities revealed in a 54-page report released by the Institute on Race and Poverty at the University of Minnesota Law School.

• People of color “continue to receive home loans on worse terms and at a higher cost than similarly situated white borrowers, according to “Communities in Crisis: Race and Mortgage Lending in the Twin Cities”. Higher incomes did not protect people of color from lending disparities, with high-income black, Latino and Asian applicants denied loans at higher rates than low-income white borrowers.

For more, see Report documents mortgage discrimination in Twin Cities.

Go here, Go here, and Go here for other posts on alleged discrimination in real estate transactions. DiscriminationPredatoryLendingAlpha