How to Investigate a Fair Lending Discrimination Complaint

1. How to Investigate a Fair Lending Discrimination Complaint

2. Lending Discrimination Statutes and Regulations • Mortgage lending discrimination is defined by federal and state statues. • Title VIII, 42 U.S.C. § 3605; • Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691-1691f • The Civil Rights Acts of 1866 & 1870, 42 U.S.C. §§ 1981-1982 (Sections 1981 & 1982) • Sections 1985 & 1986, 42 U.S.C. §§ 1985 & 1986 • Various state and local civil rights statutes

3. Fair Housing Act Prohibits Discrimination in the Sale, Rental and Financing of Residential Real Estate

4. PROTECTED CLASSES OR PROHIBITED BASIS • RACE • COLOR • RELIGION • NATIONAL ORIGIN • SEX • FAMILIAL STATUS • HANDICAP (Disability)

5. DISCRIMINATORY HOUSING PRACTICES • Unlawful refusal to sell, rent or negotiate • Unequal treatment in terms, conditions, or privileges • Failing to accept or consider a bona fide offer • Refusing to sell to or rent , or negotiate for the sale or rental of a dwelling

6. DISCRIMINATORY HOUSING PRACTICES [con’t] • Discriminatory advertisements, statements, or notices • Indicate through advertising any preferences or limitations • Imposing different sale prices • Misrepresentations on availability of housing

7. DISCRIMINATORY HOUSING PRACTICES [con’t] • Using different qualifications, criteria and standards • Providing different information, or promotional activity • Evicting any tenant on a protected basis or the characteristics of a tenants guests

8. Discrimination in Terms and Conditions • Using different policies, practices or procedures in determining a person’s eligibility • Using policies practices and procedures in an arbitrary and discriminatory manner, to reject a persons application or preapplication

9. OTHER PROHIBITED PRACTICES • Steering Assigning a person to a particular lending channel on a prohibited basis • Discouraging inspections • A packager may not refuse to package an application

10. Other Practices of Making Housing Unavailable • Using codes or devices to segregate or reject persons • Refusing to show listings in certain areas • Denying or delaying the processing of an application

11. Discriminatory Representations on the Availability of Dwellings • It is unlawful to provide inaccurate or untrue information about the availability of dwellings for sale, rent or financing.

12. DISCRIMINATION IN REAL- ESTATE RELATED TRANSACITIONS • Discrimination in the making of loans, grants, or other financial assistance • Discrimination in the purchase and packaging of loans • Discrimination in the terms and servicing of loans • Unlawful practices when selling, brokering, or appraisal of property as loan security

13. Equal Credit Opportunity Act Prohibits Discrimination in credit related transactions

14. Scope Race; Color; Religion; National Origin; Sex; Marital Status; Age; Receipt of public assistance income; and Good faith exercise of rights under the Consumer Credit Protection Act. • ECOA prohibits discrimination in any aspect of any type of credit transaction on a prohibited basis, which includes: 12 C.F. R. 202.2(z)

15. Taking the Application • A creditor cannot do anything that would discourage (on a prohibited basis) a reasonable person from making or pursuing an application.

16. Evaluating the Application • General Rule: The creditor cannot take a prohibited basis into account when evaluating an application.

17. Evaluating the Application • General Rule: The creditor cannot take a prohibited basis into account when evaluating an application. • Credit History: To the extent that a creditor considers credit history, the creditor must consider other information that the applicant presents that tends to indicate that the credit history being considered doesn’t accurately reflect the applicant’s creditworthiness. • Immigration Status: A creditor can consider whether an applicant is a permanent resident of the U.S. and his immigration status.

18. Notice of Action Taken • A creditor must notify an applicant of action taken on his application. • When approved, the notification of action taken can be express or implied. • When declined, the notification must be in writing.

19. The Nuts and Bolts of a Lending Investigation

20. Discriminatory Lending • Where does it occur? • Origination; • Servicing; and/or • Collection of loans • Foreclosure Rescue Schemes

21. What is a Mortgage? • Simply: Mortgages are the loan that homeowners borrow from banks to purchase their homes • The homeowner pays a monthly amount that consists of both Principal and Interest. • The borrower pledges the underlying land as collateral for the loan • If the borrower fails to make re-payment, the mortgage gives the lender the right of foreclosure on the loan and therefore can seize the property • This can be viewed as an investment by the banks in the mortgage market – they are purchasing an asset that pays a monthly amount of Principal and Interest (P&I) • The banks often sell these assets to other investors to raise capital = MortgageFunds Home Owner Lending Institution

22. What are Mortgage Backed “Pass-Through” Securities? • A number of similar mortgages (underlying collateral, design, rates and maturities) are combined into a single group • Mortgage documents associated with this group are delivered to a custodian and are assigned an identification (pool) number • A Mortgage Backed Security (MBS) is issued with a face amount equal to the cumulative outstanding principal balance of the mortgages (original balance) • The mortgages that have been pooled together serve as the collateral for the security • Most MBS are guaranteed and/or issued by a U.S. Government Agency (FNMA, Freddie Mac or GNMA) SecuritizedMortgage Poolor Pass-throughs = + +

23. Data Collection • Guiding Principles • Include any loan or borrower characteristic that comes into play during the lending process • Collect relevant evidence that will affirm or refute that discriminatory practice occurred. • Identify maximum number of characteristics that can explain lending disparities

24. Comparative Evidence • Home Mortgage Disclosure Act Data • Comparable loan files • Testing evidence • Statistical evidence • Marketing efforts

25. Analyzing a Loan File

26. Lending Environment • Assess Changes in Lending Environment • Review policies and guidelines to check for any changes over the quarter • Rate sheets • Exception policies • Organization of lending regions • Changes to pricing engines • Pricing specials

27. Interviews and other information gathering • Document any instances of direct evidence • Anecdotal or other evidence of discrimination by lender • Affirm or refute reasons given by respondent lender for actions taken

28. The Nuts and Bolts of a Lending Investigation

29. Thank You!