Written By: Joel Palmer, Op-Ed Writer
The Consumer Financial Protection Bureau (CFPB) will be increasing its focus in the next year on ensuring that certain mortgage borrowers don’t face credit discrimination.
The CFPB recently released its fifth Fair Lending Report, which summarizes its supervision and enforcement activity in the past year as well as its priorities for the coming year.
In the report, the CFPB outlines three priority areas where it has identified “substantial risk of credit discrimination,” including redlining, mortgage and student loan servicing and small business lending.
“In the coming years, we will increase our focus on markets or products where we see significant or emerging fair lending risk to consumers,” including mortgage loan servicing, wrote CFPB Director Richard Cordray in the opening of the report.
Specifically, the CFPB will evaluate whether lenders have intentionally avoided making loans to applicants in minority neighborhoods, a practice known as redlining. In addition, the bureau will analyze whether borrowers who are behind on their mortgage payments “have more difficulty working out a new solution with the servicer because of their race, ethnicity, sex, or age.”
The Fair Lending Report outlines the bureau’s risk-based process for determining its supervisory and enforcement priorities. The process includes the quality of an institution’s compliance management system, as well as past consumer complaints,enforcement history, analysis of HMDA data, and input from advocacy groups, whistleblowers and government agencies.
Based on what it determined to be the highest risks to consumers, the CFPB has focused the past five years on ensuring that consumers are not excluded from or made to pay more for mortgages, indirect auto loans, and credit cards because of their race, ethnicity, sex, or age.
The report indicated that “emerging fair lending risks in other areas” led to the re-prioritization for this year.
The report highlighted fair lending enforcement in the previous year. It included a summary of the joint action between the CFPB and the Justice Department against BancorpSouth Bank for what it termed “discriminatory mortgage lending practices that harmed “African Americans and other minorities.” The bank was accused of:
• Illegal redlining in Memphis, Tennessee, between 2011 and 2013. The agencies alleged that the bank structured its business to avoid and discourage consumers in minority neighborhoods from accessing mortgages.
• Discrimination in mortgage underwriting. The bank was accused of denying mortgage loans to African-American applicants more often than white applicants in similar situations.
• Pricing discrimination. The agencies also accused BancorpSouth of charging higher interest to African Americans.
A consent order entered into in July 2016 required BancorpSouth to pay $4 million in direct loan subsidies in minority neighborhoodsin Memphis, $2.78 million to affected consumers, and a $3 million penalty.
The report also covered an October 2016 warning letter to 44 mortgage lenders and mortgage brokers for potential violation of requirements to collect, record, and report data about their housing-related lending activity. According to the report, however, the CFPBmade no determination that a legal violation occurred.
Another section on rule making covered the CFPB’s amendment of Regulation C, the status of the new uniform residential loan application, and the recent proposal regarding amendments to Regulation to facilitate Regulation C compliance.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.