DOJ Settlement Puts Emphasis on Non-Discriminatory Practices

In the wake of the largest fair-lending settlement in history, one local mortgage market leader said allegations of discrimination in lending practices is, unfortunately, not something that is totally uncommon.

“I’ve been in the business 14 years and I have seen various companies be reprimanded and even fined for that sort of thing,” said Clay Conly, president of First Western Mortgage Inc. in Rogers.

But taking the right steps can help ensure the question of discriminatory practices is never raised.

“Every institution that you talk to will tell you the same thing: We don’t discriminate against anyone for any reason,” Conly said. “But [the question is] who is holding you to that standard?”

On Dec. 21, it was announced that Bank of America Corp. agreed to pay out $335 million to resolve allegations that its Countrywide division practiced a pattern of discrimination against qualified borrowers who were African-American and Hispanic.

The money from the settlement, subject to court authorization, will be used to compensate victims of Countrywide’s discriminatory mortgage loans from 2004 through 2007.

That occurred before Bank of America bought Countrywide Financial Corp. in 2008.

Nationwide, about 200,000 qualified minority borrowers suffered discrimination.

African-American and Latino borrowers were charged higher mortgage-origination fees and/or steered into more expensive subprime loans when they could have qualified for a cheaper, more conventional mortgage.

One of the requirements in the settlement, filed by the U.S. Department of Justice, requires Countrywide to put in place policies and practices to prevent discrimination if it returns to the lending business during the next four years. Countrywide currently does not originate new loans.

Do most lending institutions already have similar policies in place? Ellen Schloemer has a quick answer.

“If they’re smart they do.”

Schloemer is executive vice president at the Center for Responsible Lending in Durham, N.C. She said lending compliance is not a big industry problem and good lenders rightly pay attention to it.

“You want fair-lending compliance on the front end,” she said. “You don’t want to fix a problem, you want to prevent it in the first place.”

Schloemer said a statistical analysis of a lender’s portfolio is an easy way to discern discriminatory activity.

“I’m guessing what the DOJ did is to perform this analysis and look at the loans that they have and include race as part of that,” she said. “It paints a pretty clear picture.”

Conly has been in the mortgage industry for 14 years. He said there are two agencies that help his unit and its 12 employees maintain a high standard of non-discriminatory lending.

One is an internal compliance officer who completes a fair-lending check each year.

The other is fulfilling the requirements of the Home Mortgage Disclosure Act, passed in 1975. When a customer applies for a home mortgage at an institution covered by the HMDA, the company is required to report several pieces of information about it, including the loan amount and type, race of the borrower and ethnicity.

“We have to report that every quarter,” Conly said. “They can look at how many [loans] we denied to a certain a group of people and if it looks like all loans were denied to Hispanics, we have some explaining to do. It’s something the FDIC takes very seriously and lending institutions are held to a very high standard on that.

“And, really, it’s like the saying goes: People do what you inspect, not what you expect.”