Hello, LOs!
The new Consumer Financial Protection Bureau has certainly not hidden its agenda to ramp up enforcement. Taking bad actors to task is a laudable goal, but not everyone in the mortgage industry agrees with the CFPB's strategy.
In a recent supervisory bulletin, the consumer watchdog agency said it had identified one lender that engaged in "redlining."
Redlining was the practice of lenders, insurers and, importantly, the federal government, of systematically denying credit to areas that were deemed high-risk based on their demographic makeup. The practice was outlawed more than 50 years ago, but its impacts were far-reaching, and its effects are still evident today.
But this account of redlining, as told by the CFPB, sounded a little different. The agency said it was tipped off when one lender received far fewer applications from borrowers in minority neighborhoods, as compared to other lenders in the area. So, it looked into the matter.
It found a few things that it said amounted to discouragement of borrowers of color. Is it redlining?
In the lender's direct marketing and open house materials, it found that the models were all white. That's certainly not very encouraging for borrowers of color, but some have argued it doesn't amount to discouragement.
The lender's offices were also concentrated in white neighborhoods, and pictures of nearly all of its loan officers were white. The CFPB did not provide the name and location of the lender, but it also found that most of the loan officers were non-Hispanic white, too.
The lender is correcting the violations, the CFPB said, but there are no civil penalties. The practices the CFPB identified as redlining closely resemble those in a complaint it filed last July, against Chicago lender Townstone Financial, Inc.
Townstone moved to dismiss those charges in a counterclaim it filed in October.
The CFPB's complaint alleged that Townstone had discouraged borrowers of color, by engaging in direct marketing that targeted white borrowers, and through disparaging remarks its CEO Barry Sturner made about African-American neighborhoods on a radio program.
Seventeen percent of residents in Chicago's metro area are Black, while 30% in the City of Chicago are Black. From 2014 to 2017, Townstone drew less than 2% of its mortgage applications from Black potential borrowers, while its peers in the area received almost 10% from Black applicants, the CFPB said.
Some loan originators may not agree that fits the original definition of redlining. Does the CFPB care? How are you auditing your practices to make sure you're not the next lender accused of redlining? Please send me your thoughts on the matter: gkromrei@housingwire.com
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
EmoticonEmoticon