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How to Investigate a Fair Lending Case

How to Investigate a Fair Lending Case. Overview of Disparate Impact Claims. Facially neutral policy or practice Adversely impacts a class protected by the Fair Housing Act Without a legitimate justification Despite the availability of less discriminatory alternatives. Two Kinds of Cases.

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How to Investigate a Fair Lending Case

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  1. How to Investigate a Fair Lending Case

  2. Overview of Disparate Impact Claims • Facially neutral policy or practice • Adversely impacts a class protected by the Fair Housing Act • Without a legitimate justification • Despite the availability of less discriminatory alternatives

  3. Two Kinds of Cases • Pricing or denial cases challenging the treatment of applicants • Policy cases challenging access to credit

  4. Evidence of Pricing or Denial Disparities • HMDA data publically available today • HMDA data publically available under reforms • Information available to HUD/DOJ • Additional HMDA fields & Federal Reserve outlier list • HAMP data • FHA loan data • HERA section 1128 data on interest rate disparities

  5. Impact of Pricing and Denials • Impact upon similarly-situated (similarly-credit-worthy) borrowers • Underwriting factors may explain some disparities • Impacts • U. S. v. AIG/WFI complaint: Alleges black borrowers charged total broker fees 20 basis points higher on average than white borrowers • HUD v. MortgageIT complaint: Alleges black and Hispanic borrowers charged APRs on average 6 to 14 basis points more and approximately $1000 more in fees than similarly-situated white borrowers • HUD v. Quicken Loans complaint: Alleges that, compared with similarly-situated white applicants, black applicants experienced 2% to 5% higher denial rates and Hispanic applicants experienced 2% to 4% higher denial rates

  6. Impact of Policies • Underwriting exclusions or limitations (e.g., row-houses, Native American lands) • Lack of data on denials or borrowers subject to policies • Census or other data on affected population

  7. Legitimate Justification • Lenders make decisions based on risk of default (safety & soundness) • Requires proof • Proof can’t be hypothetical or speculative

  8. Less Discriminatory Alternatives • Unlimited discretion may be addressed by guidelines and/or caps • A lender’s later adoption of reforms may demonstrate available alternatives • You need to understand the business in order to understand the alternatives

  9. Contact information Tim Lambert HUD, Office of General Counsel Timothy.C.Lambert@hud.gov

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