On August 28th the Department of Justice announced the GFI Mortgage settlement that resulted in a restitution fund, a civil money penalty (CMP) and significant administrative requirements.
Facts
· The case originated as a HUD referral to DOJ, not a referral from a regulator such as the OCC, FDIC, Federal Reserve or CFPB.
· DOJ alleged a pattern or practice of discrimination in the pricing of residential mortgages with retail Black applicants paying an average of 19 – 41 basis points (BPs) more than non-Hispanic Whites and retail Hispanics paying 20 – 23 BPs more. On the wholesale side, Blacks paid origination fees 73 – 105 BPs more than non-Hispanic Whites while Hispanics paid 27 – 56 BPs more. As is the case with many of the more recent settlements, the charges involved both interest rates and fees.
· The restitution fund was $3.56 million or more than $5,900 per harmed applicant. This amount per harmed applicant was more than either SunTrust or Wells Fargo paid. In addition, a CMP of $55,000, the maximum amount allowed, was assessed. To assess the maximum amount suggests DOJ felt the fair lending violations were significant. In an apparent recognition of GFI’s financial condition, GFI is permitted to pay these fees in installments.
· GFI “agrees, admits and accepts responsibility” that the interest rates and fees charged Black and Hispanic applicants showed statistically significant disparities that could not be explained by objective factors in the pricing decision. In other words, the coefficients on the protected basis variables in the DOJ regression were statistically significant even after considering factors like DTI, LTV or credit score. In normal practice these consents specify “There has been no factual finding or adjudication with respect to any matter alleged by the United States.” As indicated above, GFI agreed, admitted and accepted responsibility.
· Despite giving loan officers considerable flexibility in pricing, GFI had no monitoring or training programs in place to protect against fair lending violations.
So What
· Fair lending policies and procedures as well as monitoring and training programs are essential in today’s fair lending environment.
· Basis point safe harbors for loan pricing are nonexistent.
· Smaller institutions, even those in financial straits, are not immune to fair lending settlements.
· If you think there is a possibility of a fair lending violation at your institution, investigate and fix it before the regulators find it. The potential costs are too great.
· Pricing flexibility is okay but represents a higher fair lending risk for the institution. If an institution permits pricing flexibility, monitoring is necessary.
Preiss&Associates has been doing custom fair lending risk analyses for more than 20 years. If you have fair lending questions, want to talk about your fair lending issues or have need for us to assist you with your fair lending program give us a call at 847-295-6881 or drop us an email at rpreiss@preisscoc.com.
