Last week, HUD announced that it had reached a $12.1 million Fair Housing Act (FHA) settlement with the subsidiary of a bank to resolve allegations that the residential mortgage lender discriminated against African American and Hispanic borrowers seeking mortgage loans.  HUD alleged that the minority borrowers were charged higher interest rates than were white borrowers, that the minority applicants were denied more often, and that minority borrowers were charged higher fees.

HUD did not allege any intentional discrimination and instead based its allegations on a finding that statistical disparities existed after an evaluation of the bank’s internal raw data from a number of years ago.   To illustrate, HUD claimed that African American borrowers were 65 percent and Hispanic borrowers were 72 percent more likely to receive a higher priced loans than similarly situated white borrowers.  Additionally, HUD noted that African American and Hispanic borrowers paid, on average, $707 and $906 more in fees, respectively.  Finally, HUD alleged that an African American applicant was 45 percent more likely to be denied a loan than a similarly situated white borrower and a Hispanic borrower was 35 percent more likely to be denied.

Under the terms of the settlement, the bank will establish a $12.1 million fund to compensate borrowers across the country who were unfairly denied a loan or whose loan may have contained a term or condition that violated the FHA.  Notably, if there are any funds remaining after the impacted individuals have been paid, those funds will be distributed to qualified organizations that provide credit and housing counseling, financial literacy, and related programs to assist minority applicants.

As I have written any number of times, disparate impact remains a valuable enforcement tool used by HUD as the government reviews housing operations nationwide.  Indeed, now you see why so many people (on both sides of the issue) are interested in the outcome of the Mt. Holly Gardens disparate impact FHA case pending before the U.S. Supreme Court.

Just A Thought.