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Consistent with recent indications from CFPB and Department of Justice officials that more redlining cases would soon be coming, the CFPB and DOJ have announced a proposed consent order with Hudson City Savings Bank to settle allegations that the bank had engaged in a pattern or practice of redlining predominantly black and Hispanic neighborhoods in its residential mortgage lending.
The joint complaint filed by the CFPB and DOJ in federal district court in New Jersey states that the action resulted from a joint investigation by the agencies of the bank’s lending practices following the CFPB’s referral of the bank to the DOJ pursuant to the ECOA. The referral was triggered by a CFPB examination of the bank. In the complaint, the agencies alleged that from at least 2009 to 2013 (the “relevant time period”), the bank violated the ECOA and FHA by locating branches and loan officers, selecting mortgage brokers, and marketing loan products to avoid and thereby discourage prospective borrowers in predominantly black and Hispanic neighborhoods in at least three Metropolitan Statistical Areas (MSAs) that generated the vast majority of its residential mortgage applications. Those MSAs were the New York City-Northern New Jersey-Long Island MSA (the NY/NJ MSA), the Philadelphia, Pennsylvania-Camden, New Jersey–Wilmington, Delaware MSA (the Camden MSA), and the Bridgeport-Stamford-Norwalk, Connecticut MSA.
According to the complaint, the bank’s unlawful redlining practices included the following:
• In carrying out a program to expand the bank’s branches outside of New Jersey from 2004 through 2010, the bank’s management focused on markets in areas of New York and Connecticut that “form a semicircle around the four counties in New York with the highest proportions of majority-black-and-Hispanic neighborhoods.” The complaint alleged that based on 2000 and 2010 census data, more than 90 percent of the branches opened or acquired as a result of this expansion effort were outside of majority-black-and-Hispanic neighborhoods. It also alleged that during the relevant time period, the bank did not accept first lien mortgage loan applications at all of its branches and referred applicants to one of seven retail loan officers working at branches outside of and not in proximity to majority-black-and-Hispanic areas.
• The bank generated approximately 80 percent of its mortgage applications through mortgage brokers who were heavily concentrated outside of majority-black-and-Hispanic areas.
• The bank engaged in limited marketing outside of its branch network that focused on neighborhoods with relatively few black and Hispanic residents and therefore “failed to advertise meaningfully in majority-black-and-Hispanic neighborhoods.”
• In delineating its assessment area under the Community Reinvestment Act (CRA), the bank excluded most of the majority-black-and-Hispanic neighborhoods in the NY/NJ and Camden MSAs.
• During the relevant period, the bank failed to exercise adequate oversight or hire sufficient staff to ensure fair lending compliance and had no written policies or procedures to monitor for compliance.
The proposed consent order requires the bank to pay a $5.5 million civil money penalty to the CFPB. In addition, the bank must:
• Invest $25 million in a loan subsidy program to increase the amount of credit the bank extends in majority-black-and-Hispanic neighborhoods in the affected MSAs. The program will offer residents in such neighborhoods home mortgage loans “on a more affordable basis than otherwise available from [the bank].” To make the loans “more affordable,” the bank must offer specified subsidies (such as interest rate reductions, closing cost assistance, or down payment assistance) for mortgage loans made to “qualified applicants” as defined by the consent order.
• Spend at least $200,000 annually (for at least five years) on a targeted advertising and outreach campaign that advertises the loan subsidy program and is targeted to generate mortgage loan applications from qualified residents in majority-black-and-Hispanic neighborhoods in the affected MSAs.
• Spend at least $750,000 on partnerships with community-based or governmental organizations that provide financial or other assistance to residents in majority-black-and-Hispanic neighborhoods in the affected MSAs.
• Spend at least $100,000 annually (for at least five years) to sponsor at least 12 annual financial education events offered by community and governmental organizations, with the events to cover credit counseling, financial literacy, and other related educational programs “to help identify and develop” qualified loan applicants from majority-black-and-Hispanic neighborhoods in the affected MSAs. (The amount the bank must spend cannot include salaries or other compensation paid to bank personnel participating in the events.)
• Open or acquire two new full-service branches within majority-black-and-Hispanic neighborhoods in the affected MSAs, with the branches to be located in “retail-oriented spaces in visible locations accessible to concentrations of owner-occupied residential properties in the majority-black-and-Hispanic neighborhoods in the affected MSAs” and that “will provide the complete range of services typically offered at [the bank’s] full-service branches and will accept first-lien mortgage applications.”
• Revise its CRA assessment areas to include all of Bronx, Kings, Queens, and New York counties in New York; the city of Camden; and the city of Philadelphia.
• Hire a third-party consultant to assess the credit needs of the majority-black-and-Hispanic communities within the affected MSAs and, based on the consultant’s written report, submit a remedial plan to the CFPB and DOJ that details the actions the bank plans to take to comply with the requirements of the consent order “to best achieve the [order’s] remedial goals.”
• Hire a third-party consultant to assess the bank’s redlining compliance management system and, based on the consultant’s written report, submit a written ECOA/FHA compliance plan to the CFPB and DOJ that includes various elements such as policies and procedures for the selection and oversight of brokers to address redlining risks and monitoring for redlining. The bank must also conduct fair lending training for its employees and hire a full-time director of community development whose responsibilities include overseeing the bank’s continued lending in majority-black-and-Hispanic neighborhoods within the affected MSAs consistent with the remedial plan and building relationships with community organizations.
One wonders whether the CFPB and DOJ consulted with the OCC, the bank’s prudential regulator, about the terms of the proposed consent order.
- Barbara S. Mishkin
Read more from this issue of the Mortgage Banking Update.
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