Fairway blasts regulators in $10M redlining settlement

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Fairway Unbiased Mortgage Corp. has agreed to a $10 million settlement with federal regulators who accused the nation’s third-largest mortgage lender of redlining within the metro Birmingham, Alabama, market.

Madison, Wisconsin-based Fairway entered the six-county Birmingham market in 2009 with the acquisition of MortgageBanc. On Tuesday, Fairway turned the fifteenth lender to settle with the Division of Justice because the company launched an initiative to fight redlining three years in the past.

“While Fairway claimed to serve the entire metropolitan area, it concentrated all its retail loan offices in majority-white areas, directed less than 3 percent of its direct mail advertising to consumers in majority-Black areas, and for years discouraged homeownership in majority-Black areas by generating loan applications at a rate far below its peer institutions,” the Division of Justice mentioned in asserting the settlement.

“This settlement makes clear our intent to uproot modern-day redlining in every corner of the country, including in the deep South,” Assistant Legal professional Common Kristen Clarke mentioned in an announcement.

However in a uncommon public airing of grievances, Fairway claims the federal government companies it settled with “did not identify any evidence of redlining or other discrimination,” and accuses the companies of appearing in “bad faith” by characterizing Fairway’s actions as intentional, willful and reckless.

“Fairway vigorously defended itself against the government agencies’ allegations and continues to deny that the company engaged in any discriminatory behavior,” Fairway mentioned in an announcement.

Fairway’s assertion casts the corporate as a sufferer of politics, noting that the CFPB kicked off its investigation in 2021, “the first full day after the Biden Administration took office,” and that the grievance in opposition to it was “filed days before the impending Presidential election.”

The Justice Division joined a declare by the Client Monetary Safety Bureau (CFPB) alleging that from 2018 by way of 2022, Fairway did not find any of its retail workplaces in majority-Black areas or incentivize mortgage officers to serve debtors in these neighborhoods.

Fairway allegedly directed lower than 3 p.c of its junk mail promoting to residents of majority-Black areas from 2018 to 2020, the CFPB mentioned in an Oct. 15 grievance.

Fairway’s Birmingham originations, 2018-2021

In consequence, solely 3.3 p.c of the 7,913 mortgages Fairway made within the six-county Birmingham market from 2018 by way of 2022 have been for properties in majority-Black areas, the federal government alleged.

Throughout that interval, Fairway’s friends made 10 p.c of their loans in these areas — greater than 3 times the speed of Fairway.

“Even when Fairway made loans in majority-Black areas … the borrowers themselves were less likely to be Black,” the grievance mentioned.

A little bit greater than a 3rd of the loans (38 p.c) Fairway made in majority-Black neighborhoods went to candidates who have been recognized as Black, in comparison with 74 p.c of loans made by Fairway’s friends, the federal government alleged.

Beneath the phrases of the proposed consent order — which should nonetheless be permitted by the court docket — Fairway neither admitted nor denied the allegations within the grievance, however agreed to:

• Pay a $1.9 million civil penalty
• Open or purchase a brand new mortgage manufacturing workplace or full-service retail workplace in a majority-Black neighborhood within the Birmingham market
• Present $7 million for a mortgage subsidy program to supply reasonably priced dwelling buy, refinance and residential enchancment loans in Birmingham’s majority-Black neighborhoods
• Spend a further $1 million selling the mortgage subsidy fund by way of promoting and outreach, client monetary training and partnerships with neighborhood teams

“The CFPB and DOJ are holding Fairway accountable for redlining Black neighborhoods,” CFPB Director Rohit Chopra mentioned in a assertion. “Fairway’s unlawful redlining discouraged families from seeking loans for homes in Birmingham’s Black neighborhoods.”

Fairway engaged in a sample or apply of discrimination that “was intentional and willful and was implemented with reckless disregard for the rights of individuals based on their race or color,” the CFPB alleged in its grievance.

Fairway cries foul

Based on the CFPB, Fairway was the nation’s third-largest mortgage lender in 2023, fielding greater than 100,000 functions and originating over $24 billion in loans. A intently held firm, CEO Steve Jacobson is almost all proprietor.

After the settlement was introduced, Fairway issued a strongly worded assertion Tuesday night taking problem with allegations leveled within the grievance, which the corporate mentioned it didn’t see till after agreeing to settle.

“The complaint significantly mischaracterizes the matter at issue and appears to be intentionally inflammatory in nature,” Fairway mentioned. “For one, the complaint characterizes Fairway’s actions as willful and reckless, a claim that was mutually rejected by the parties prior to settlement.”

The CFPB’s grievance “characterizes Fairway’s actions as willful and intentional, despite the government agencies’ failure to identify any evidence to support such a claim. Fairway is disappointed by these statements in the complaint, which suggest bad faith by the part of the government agencies.”

Fairway claims that by way of uncooked items, it took extra mortgage functions and made extra loans in majority-Black census tracts in the course of the time in query than some other nonbank lender with a bodily presence within the Birmingham market.

“Despite a multi-year investigation … the government agencies did not identify any evidence of redlining or other discrimination by Fairway,” the corporate claimed. “Rather, the government agencies relied on a quota analysis to allege that Fairway was not meeting the needs of residents of majority-Black census tracts, in contravention of the U.S. Supreme Court’s 2023 decisions regarding affirmative action.”

Branches places, advertising scrutinized

A nonbank lender, Fairway sponsors 2,605 mortgage mortgage originators understanding of 649 department workplaces nationwide, in keeping with information maintained by the Nationwide Multistate Licensing System.

Of their grievance, authorities prosecutors alleged Fairway’s practices violated the Truthful Housing Act (FHA), the Equal Credit score Alternative Act (ECOA) and the Client Monetary Safety Act of 2010.

From 2015 by way of 2022, Fairway operated three retail mortgage workplaces and three mortgage manufacturing desks positioned in actual property workplaces within the Birmingham market — all positioned in majority-white areas, the grievance mentioned.

“Fairway’s primary method of marketing and generating mortgage loan applications in the Birmingham [market] was through its loan officers’ referral sources of real estate agents and builders, current and former customers, and individuals in their churches, local schools, family, and social organizations,” prosecutors mentioned.

Lower than 3 p.c of Fairway’s referrals of candidates or potential candidates have been from majority-Black areas, the grievance alleged.

Considered one of Fairway’s largest advertising expenditures in 2018 and 2019 was advertising providers agreements with two actual property brokerages, ARC Realty and LIST Birmingham, positioned in majority-white areas, prosecutors mentioned.

“Fairway predominantly directed mail and other marketing and advertising to majority-white areas, and also directed almost no advertising specifically at majority-Black areas and high-Black areas,” the grievance alleged.

Prosecutors additionally cited situations through which Fairway staff “exchanged emails using derogatory or discriminatory language.”

In a 2018 e-mail chain, a top-producing mortgage officer referred to an applicant’s mates as “thug friends,” and wrote of the applicant, “We don’t need him as a client. He is a liability waiting to happen.”

Prosecutors mentioned information supplied by Fairway exhibits that the applicant, who was African American, withdrew his software in 2018.

In one other 2020 e-mail chain, a top-producing mortgage officer referred to Ensley, a predominantly Black neighborhood in Birmingham, as “the GHETTO,” and guaranteed a mortgage processor, “We don’t own a house there I promise. LOL!”

The Fairway processor responded “ROFLOL” [rolling on the floor laughing out loud].

Along with denying that it engaged in discriminatory habits, Fairway additionally maintains its “strong disagreement with the government agencies’ legal and statistical approach to identifying potential discrimination. However, to resolve the matter and curb the further expenditure of resources, Fairway determined that a settlement with the [CFPB] and the DOJ would be the most appropriate solution.”

Since launching its initiative to fight redlining in 2021, the Division of Justice has reached settlements with 15 mortgage lenders totaling $154 million, together with:

• Citadel Federal Credit score Union, which on Oct. 10 agreed to take a position $6.5 million in predominantly Black and Hispanic neighborhoods in Philadelphia County.
• New Jersey-based OceanFirst Financial institution, which in September agreed to a $15.1 million settlement after buying Solar Nationwide Financial institution and Two River Group Financial institution and shutting branches that have been positioned in majority-Black, Hispanic and Asian neighborhoods.
• First Nationwide Financial institution of Pennsylvania, which in February agreed to take a position no less than $11.75 million in a mortgage subsidy fund to supply higher entry to mortgages and residential enchancment loans to residents of majority-Black and Hispanic neighborhoods within the Charlotte and Winston-Salem, North Carolina, markets.
• Jacksonville, Florida-based Ameris Financial institution, which agreed in October 2023 to a $9 million settlement aimed toward enhancing entry to credit score in majority-Black and Hispanic neighborhoods.
• Lakeland Financial institution, which agreed in September 2022 to take a position no less than $12 million in a mortgage subsidy fund for residents of Black and Hispanic neighborhoods within the Newark, New Jersey, metropolitan space, together with neighborhoods in Essex, Somerset and Union counties.
• Berkshire Hathaway-owned Trident Mortgage Firm, which agreed in July 2022 to take a position greater than $20 million to create homeownership alternatives in communities of colour round Philadelphia.

The DoJ mentioned its redlining initiative is anticipated to generate greater than $1 billion in funding in communities of colour in markets together with Houston, Memphis, Los Angeles and Philadelphia.

Metropolis Nationwide Financial institution, which entered right into a report $31 million redlining settlement final yr, for instance, is now providing grants of as much as $50,000 in majority-Black or Hispanic neighborhoods within the metro Los Angeles market as half of a bigger initiative to spice up lending to underserved communities in a number of states.

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E mail Matt Carter