Jan 28, 2010

FHA Reverse Redlining and Pleading Standards

United States District Court, N.D. California
Hafiz v. Greenpoint Mortg. Funding, Inc.
652 F.Supp.2d 1039
July 16, 2009

Hafiz is significant to fair housing law because it re-articulates the manner in which a predatory-lending/reverse-redlining claim can be made under the FHA. It also shows how some courts are using the new more stringent pleading standards under Iqbal to dismiss federal claims.

Plaintiff Majiman Hafiz's investment property was subject to foreclosure after falling behind in her monthly mortgage payments. In order to prevent the foreclosure sale of her property, Plaintiff alleged in her complaint that Defendant, Greenpoint Mortgage, failed to give her adequate time for review of the loan documents. Plaintiff also alleged that Defendant failed to disclose mortgage-related information as required by state and federal law. Plaintiff claimed that these alleged acts of excessive fee structures and failed disclosures on behalf of defendants resulted in the issuance of a loan which was subject to a repayment schedule that would eventually "outstrip" her ability to pay.

Among numerous other alleged violations, plaintiff claimed that defendants violated the Fair Housing Act under the theory of "reverse-redlining" which makes it unlawful for lenders to offer credit to certain classes, people groups, or geographic areas on terms less favorable to persons outside of the targeted people group. Should a lender only offer adjustable rate mortgages to persons of color buying in a particular neighborhood while offering fixed rate mortgages with lower interest rates to whites in the same or different area, such would likely constitute reverse redlining. Redlining on the other hand was the denial of any financial services to persons based on race, etc.

In Hafiz, the court provided a four part test for reverse-redlining violations under the FHA: (1) plaintiff is a member of a protected class; (2) plaintiff applied and was qualified for the loans; (3) the loans were given on grossly unfavorable terms; and (4) that the lender either intentionally targeted plaintiff for unfair loans or currently makes loans on more favorable terms to others. Id. at 1046.

The Court found no FHA violation because the complaint fell short of the relatively new fact pleading threshold requirements under Ashcroft v. Iqbal 129 S.Ct. 1937 (2009). Instead of pleading sufficient factual findings, the plaintiff merely stated legal conclusions of being extended less favorable loans than "Caucasian counterparts." Accordingly, these conclusions were considered to be "couched as factual allegations which are not entitled to a presumption of truth." Id. at 1046. The reverse-redlining claim was ordered insufficient to overcome the motion to dismiss.


  1. What use was it that everyone could get easy credit when they won't be able to afford to hold onto it? The Fed can't control long-term interest rates and this will spell disaster: Of Mortgage Brokers, ARMs, Attrition and Marathons

  2. Easy credit has already spelled disaster. Unfortunately many end users and consumers cannot look after themselves and live within the credit bubble - on that bursts, proven time and time again. Federal Grants

  3. Very Interesting information. Nice sharing information to all.