Lending and Discrimination: A Recipe for Disaster

Any financial institution engaged in mortgage lending has a responsibility to make sure its employees are aware of the current status of lending discrimination laws. The Office of Fair Housing and Equal Opportunity (FHEO) office of HUD has established a set of guidelines to help lenders understand fair lending and the law that governs it, how fair housing rights are protected under the federal Fair Housing Act, and how to spot signs of a violation.

Lending discrimination can occur at any stage of the lending process, whether someone is purchasing or refinancing a home. For example, if a lender refuses to make a mortgage loan because of the applicant’s race or ethnicity, or if a lender charges excessive fees to refinance a current mortgage loan based on race or ethnicity, the lender is in violation of the federal Fair Housing Act.

FHEO recommends creating fair lending checkpoints to ensure employees in a financial institution are practicing lending inclusion for residential mortgage loan applicants – regardless of their gender, race, religion, national origin, disability, or familial status. The intent of this important effort is to create equal housing opportunities for all persons living in America. We have highlighted that list here, and welcome any questions you may have.

Practice equal regulations:

If requiring a co-signature on a loan, this regulation must occur regardless of gender. Ensure your loan team does not engage any of the following practices all too commonly assigned to minorities or women:

• Unnecessary closing costs
• Inflated appraisal costs
• Inflated broker or lender fees
• Unnecessary recording fees
• Excessive prepayment penalties
• Changing mortgage loan terms at closing without the consent of the borrower

Marketing:

Audit current marketing tactics and restructure to meet fair lending guidelines. Note that aggressive solicitations of adverse terms of credit to targeted minority neighborhoods, racial or ethnic groups, and communities; or racial steering to high cost lenders all are forms of lending discrimination.

Checkpoints:

Consider your bank’s review process. Establish new protocols if they are not already in place to review fair lending and gender inclusion. Bring in speakers to regularly inform your employees about what gender and racial inclusion means. With the correct tools, there is no excuse for breaking the law against fair lending.

Reporting:

While it may be challenging to penalize someone within your organization who is engaging in unlawful practices, don’t allow their violations to harm your bank. Any lender, real estate and mortgage broker, appraiser, loan servicer, or title company can commit lending discrimination in any phase of the mortgage loan process. It’s your role to report a person, company, or entity attempting to violate your fair lending.

Protect your customers and your bank from lending discrimination by practicing strict fair lending policies. Teach your employees the signs of discrimination. Give them the tools to prevent any action towards gender or racial discrimination. Regularly audit your employees to be sure that fair lending is in place and provide positive reinforcement for those at your bank who work to uphold your policies.

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