The Department of Justice and the Consumer Financial Protection Bureau are taking the fight to non-bank mortgage lenders for redlining.
The two agencies revealed their new strategy to rein in mortgage discrimination on Wednesday, with a $24.4 million consent order, stemming from a referral the CFPB made in November 2020. It’s the DOJ’s second-largest mortgage redlining settlement ever, and its first against a non-bank mortgage lender.
The complaint alleged Trident Mortgage Co., a subsidiary of Warren Buffet’s Berkshire Hathaway, discriminated in its marketing outreach, failed to hire minority loan officers, avoided making loans or locating offices in minority areas and sent racist internal emails.
To resolve the DOJ and CFPB’s claims of redlining, Trident will pay $18.4 million toward increasing credit access in Philadelphia communities of color. Trident will also pay a civil penalty of $4 million to the CFPB.
Trident, which ceased doing business in 2021, will have to contract with a lender to open offices in minority areas and conduct outreach. It must also contract with a lender to administer $18.4 million to make “loans on a more affordable basis than otherwise available.” The loans may not exceed the conforming loan limit. The funds can also be used for down payment assistance or grants, but the amount of assistance per borrower can’t exceed $10,000.
Liz Liton, a spokesperson for HomeServices of America, Trident’s parent company and a subsidiary of Berkshire Hathaway, said the company “strongly disagreed” with the agencies’ interpretation of Trident’s practices, and said that the company has “never denied or discouraged access to mortgage loans or other services based on race.”
HomeServices of America was not named a defendant, but it did sign the consent order along with Trident.
In a press conference with federal and state DOJ officials announcing the consent order, CFPB Director Rohit Chopra said that the Bureau will be “increasing resources to state partners to regulate nonbank mortgage lenders.”
“One area where states are starting to make a difference is by passing their own Community Reinvestment Act laws to make sure all mortgage companies, bank or nonbank, serve everyone fairly,” said Chopra.
The federal anti-redlining statute, the Community Reinvestment Act, does not apply to non-bank mortgage lenders. In recent years, states including Illinois, Massachusetts and New York have passed laws that expand CRA-like frameworks to nonbanks and credit unions.
The federal CRA statute is also getting a major overhaul from federal regulators that enforce it. Bank regulators’ first draft, however, would not change the rule to include language specific to race — a critical fault in the eyes of many fair housing advocates.
Referring to non-bank mortgage lenders, Chopra said the CFPB would “look for new ways to penalize them and hold them accountable when they break the law with impunity.”
Chopra also reiterated his concerns about digital redlining, and algorithms that “might disguise bias in the formula.”
The consent order with Trident follows reporting from Reveal, an investigative journalism outlet, that the mortgage company catered to white borrowers. In 2018, Allison Bethel, director of the fair housing clinic at the John Marshall Law School in Chicago, told Reveal that it seemed Trident was “intentionally avoiding doing business with people of color.”
The complaint against Trident alleges that nearly all of its offices were in majority-white areas. The complaint alleged that 64 of Trident’s 68 loan officers in Philadelphia from 2015 to 2019 were white. In its marketing materials, the company allegedly used “white-appearing models and images of all white mortgage loan officers,” which the DOJ and CFPB allege discouraged minority residents from applying for loans.
The mortgage applications Trident ultimately generated in majority-minority areas also lagged its peers, according to the complaint. Out of the 30,701 mortgage applications Trident made from 2015 to 2019 in Philadelphia, 12% came from residents of majority-minority areas, the complaint alleged. According to the complaint, Trident’s peers generated 21.5% of their applications from the same majority-minority neighborhoods.
Marketing and lending disparities, lack of minority loan officers and few offices in majority-minority neighborhoods are standard fare for redlining complaints. But the DOJ and CFPB also found that loan officers sent emails containing racial slurs, including references to properties in minority-majority neighborhoods as being in the “ghetto.”
The company’s senior vice president, responsible for hiring and overseeing loan officers, posed with others in front of a Confederate flag in 2019, the complaint alleged.
The DOJ announced last year with large bank regulator Office of the Comptroller of the Currency, and with the CFPB, a new joint effort to curb redlining.