Oct 17, 2012

ACLU suit accuses Morgan Stanley of fair housing discrimination:

The Wall Street Journal reports that American Civil Liberties Union (ACLU) filed suit on behalf of Michigan Legal Services, a non-profit community advocacy group, and five individual Detroit residents against Morgan Stanley. The ACLU alleges that Morgan Stanley provided critical funding to New Century Financial Corp., a now-defunct subprime lender, and encouraged lending tactics that raised the risks associated with the loans. New Century was the second biggest U.S. subprime mortgage lender until its collapse in April 2007. The ACLU accuses Morgan Stanley of discriminating against black homeowners and violating federal civil rights laws by providing incentives to subprime mortgage lenders to originate mortgages that were destined for foreclosure. The ACLU is calling it the first case to connect racial discrimination to mortgage securitization, in which loans are bundled and sold to institutional investors. It is also the first case where homeowners are suing an investment bank directly rather than the subprime lender whose loans the bank bought, the ACLU said.

Jul 9, 2012

Round and Round the “Steering” Wheel Goes for Allentown, Pennsylvania

As we have reported previously, discrimination is alive and well in our communities, as the community of Allentown, Pennsylvania, discovered. The Morning Call, a local newspaper, reports that a housing “sting” operation revealed that real estate agents treated white and minority home buyers differently in 73 percent of cases, steering white buyers to the suburbs and minorities to the city, even when they each had the same job history and income.

These actions, known as “steering”, are illegal under the federal fair housing act. County officials state that this practice could have damaged Allentown's economic development for decades, draining income and diversity from city neighborhoods.

The Community Action Committee of the Lehigh Valley, with Allentown's help, organized the fair housing test after years of hearing anecdotes of housing discrimination, said Alan Jennings, executive director of the CACLV. "Next time, we're not going to hold a press conference," Mayor Ed Pawlowski said. “...[W]e're going to file federal charges."

The Fair Housing Council of Suburban Philadelphia set up 33 tests between March 2011 and December 2011 — 22 by phone and 11 in person — that had one white buyer and one minority buyer asking to look at homes in Allentown.

Other than race or ethnicity, each buyer was identical on paper, with the same income level, employment history and number of household residents.

But the Fair Housing Council said in nearly three-fourths of cases — 24 tests — treatment varied by race. Only in one test were home buyers treated similarly. Eight cases were inconclusive.

"We're standing here over a century later and we're still talking about fighting unfair practices — practices we thought had gone by the wayside because of laws that exist," said Dan Boskett, president of the local chapter of the NAACP.

Meanwhile, Ryan Conrad, the CEO of the Lehigh Valley Association of Realtors, stood alongside Jennings and the mayor, promising the association would work to educate the nearly 2,000 licensed agents in the Lehigh Valley.

Conrad said there is a "zero tolerance to noncompliance" and that the association is taking these findings "very seriously."

He said the association will ask members to sign and display a pledge vowing compliance with federal fair housing laws. The association will also host a fair housing forum, launch a publication for consumers informing them of their rights and establish a minority task force.

A slap on the wrist seems like light punishment, but the threat of a suit in federal court should change the direction in which the housing market in Allentown is headed.

Jun 8, 2012

SunTrust $21Million Settlement with DOJ

This past Thursday, Businessweek covered a massive settlement in a federal lawsuit alleging racial discrimination in SunTrust’s lending practices. The suit, filed by the US DOJ, was filed in the U.S. District Court in Richmond, VA, alleging more than 20,000 African-American and Hispanic borrowers were charged more than similarly-situated and qualified non-Hispanic white borrowers, between 2005 and 2009.

The suit alleged that minority borrowers in 75 geographic markets from Virginia Beach, VA to San Francisco, CA, paid more in loan fees, or were charged higher interest rates based solely on race or national origin.

A consent order filed with the complaint says SunTrust denies any wrongdoing, but agreed to the settlement. "SunTrust strongly believes in the principles of fair lending," company spokesman Mike McCoy in Atlanta said. "We are pleased to have reached a settlement and put this matter behind us."

Settlements like this come as a surprise, considering the massive $335 million fair-lending settlement with the “Big 5” banks. "At the core of the complaint is a simple story: If you were African-American or Latino, you likely paid more for a SunTrust loan than a similarly qualified white borrower simply because of your skin color ... You paid what amounted to a racial surtax that ranged from hundreds to thousands of dollars," said Thomas E. Perez, assistant attorney general for the Civil Rights Division.

The suit sprang forth from a referral from the Federal Reserve, which reviewed the Richmond-based mortgage company's compliance with the Fair Housing Act and the Equal Credit Opportunity Act. The DOJ said it reviewed more than 850,000 residential mortgage loans originated by SunTrust between 2005 and 2009.

According to the data, SunTrust set prices based on objective credit-related criteria but allowed its own loan officers as well as its national network of brokers to adjust those prices without regard to borrower risk, often resulting in black and Latino customers paying more than white borrowers. SunTrust "incentivized discrimination" by sharing the inflated charges with those loan officers and brokers, Perez said. “Those minority borrowers had no idea white customers with similar credit would pay less ... That is discrimination with a smile."

Brokers generally extracted larger overpayments. For example, Latino customers in Dallas borrowing $200,000 through a broker paid about $1,360 more than similarly qualified white borrowers while black customers in Atlanta were charged about $745 more than white voters.

According to the consent decree, SunTrust will be required to put the $21 million into an interest-bearing escrow account. Borrowers in 34 states and the District of Columbia who paid too much will be contacted. Any money left over after borrowers are compensated will be distributed to fair-housing and credit-counseling organizations.

The settlement is pending court approval.

May 23, 2012

Housing Discrimination Alive and Well in the 21st Century

Some people are in denial that in this day and age, discrimination simply does not exist anymore. Taking things at face value, one can see how an individual may be lulled into a false sense of security – legislation designed to protect minorities, affirmative action, et cetera, exist for the advancement of colored peoples in this nation.

However, according to a recent study by the Consumer Action group, all is not fair in home and housing. Consumer Action contacted 5,000 community organizations across the country, compiling information from 549 respondents, who reported “serious issues with housing discrimination.” The survey shows that immigrants, the disabled, and families with children aren’t welcome in some places, and that “immigrants face the greatest hardships in finding legal recourse for housing discrimination.”

One reason, Consumer Action claims, may be cultural barriers. Non-English-speaking minorities could be left out in the cold by unfair housing practices. The study found that “seven out of 10 Community-based organizations (CBOs) say that housing discrimination is a “very serious” or “somewhat serious” problem for the people they serve,” and that “roughly half of CBOs (48 percent) agree that housing discrimination is a “very serious” problem today.”

The study also found that “among the most common barriers to filing discrimination complaints, as reported by CBOs, are factors that specifically concern immigrants, including: “cultural issues, such as the fear of authorities” (59 percent); “language barriers” (54 percent); and “legal status in the U.S.” (56 percent).

Other protected classes, disability (77 percent), race (62 percent) and family status (60 percent) are the top three distinguishing features of individuals seeking help with housing discrimination problems from CBOs.

To make matters worse, Ken McEldowney, Executive Director of Consumer Action, said in a press conference that “two-thirds of the responding community organizations reported people were generally unaware of their rights, affecting their standard of living regardless of what housing they can afford.”

Consumer Action found a pattern across the nation, showing that housing discrimination often bars immigrants, people with disabilities and families with children from living in safer, higher-income neighborhoods they could afford, forcing them instead to move into high-crime areas.

Although our country has made great strides in the effort to provide fair housing for all, it appears that for many of our immigrant communities, fair housing remains unattainable.

May 15, 2012

Counting Down to 2015: Banks Looking to the Future to Bring Back the Past

The National Mortgage Settlement was enacted not just to punish the wrong-doing of the nation’s five biggest lenders, but to create new safeguards to regulate the home buyer’s market. The deal involved Wells Fargo, Bank of America, Citibank, JP Morgan Chase, and Ally Financial to pay an unprecedented $24 billion to fund government programs like the Home Affordable Mortgage Program, or HAMP.

While the effectiveness of these government programs funded by the settlement is being debated, the policies put in place by the settlement are due to expire in 2015. The Huffington Post reports that legal agreements among the banks, and the states and federal government hold for only three-and-a-half years. Good news for the banks. Bad news continues for those facing foreclosure.

But there’s a way around the expiration of the Federal mandates. California Attorney General Kamala Harris, for example, is attempting to make permanent some of the National Mortgage Settlement's most important "servicing standard" reforms by writing them into state law. "The success of the national mortgage settlement in terms of reforms is laudable, but it only lasts for three years," Harris said. "We need to make the fixes permanent." More states should follow California’s proactive idea.

Lenders, however, are fighting back, spending a reported $500,000 in lobbying efforts in the State of California alone during the first three months of 2012. While this display of monetary “shock and awe” tactics seems unnecessary, Lenders are willing to be it all in the high stakes game of politics.

California’s proposed bill, “Homeowner Bill of Rights”, if enacted, would require all banks and servicers in the state to adopt the National Mortgage Settlement reforms. "Dual-tracking," a procedure by which banks would pursue foreclosure proceedings against homeowners, who, at the same time, are pursuing a trial loan modification, prohibited in the Settlement, would be illegal according to the proposed legislation. Another proposed law that mimics the Settlement would require financial institutions to establish a single point of contact for troubled borrowers -- a response to widespread complaints from homeowners that when they called for help, they never could speak to the same person twice.

The Federal Consumer Financial Protection Bureau plans to propose rules this summer that will protect mortgage borrowers "from being hit by costly surprises or getting the runaround from their mortgage servicer." The agency will finalize those rules in January, it said. Republican presidential nominee Mitt Romney has said that if he were elected, he would try to dismantle the Dodd-Frank Act that created the agency, though that effort would likely face long odds in the U.S. Senate.

With banks spending millions of dollars in an effort to comply with these new regulations, on top of the $24 billion hit they took this past February, lenders are looking for an escape route. Although 2015 is still a long ways away, reminiscing about the lending industry before the national mortgage settlement means looking to the future.

Feb 13, 2012

St. Paul Withdraws From US Supreme Court Case Potentially Pivotal To Fair Housing Actions

Last November, we reported on Gallagher v. Magner, 619 F.3d 823, 829 (8th Cir. 2010), and its potentially lethal effect on a cornerstone of Fair Housing actions: disparate impact and the application of the McDonnell-Douglas “burden-shifting” analysis.

However, on Friday, February 10, 2012, the parties withdrew the case from the US Supreme Court just a few weeks before the scheduled argument of February 29. The US Supreme Court granted the withdrawal.

The parties in the case were the City of St. Paul, Minnesota (namely, the Department of Neighborhood Housing and Property Improvement [DNHPI]), and property owners who allege that their homes were targeted by housing code enforcement personnel and their draconian treatment of so-called violations of the housing code. The Plaintiffs brought suit against the City of St. Paul and the DNHPI alleging that the city’s enforcement of its housing code had a disparate impact on minority home and property owners, “whose customers were mainly individuals or families with low incomes, with a large share of them — perhaps 60 to 70 percent — African-American tenants.”

As a cause of action, disparate impact and the McDonnell-Douglas “burden shifting” analysis were indispensible tools in the fight against housing discrimination. During the infancy of the Fair Housing Act, (passed in 1968) Arlington Heights v. Metropolitan Housing Development Corporation decided that the four part “burden shifting” test, first used in McDonnell-Douglas Corp. v. Green and Texas Dept. of Community Affairs v. Burdine, both cases dealing with discrimination in the workplace, could be applied to housing discrimination cases. In the housing context, the Arlington Heights disparate impact claim turned on four factors: 1) A showing of discriminatory effect/impact, 2) Some showing of discriminatory intent, 3) The defendant’s justification, and 4) The relief requested by the plaintiff.

However, the court in Arlington Heights ruled that “official action will not be held unconstitutional solely because it results in a racially disproportionate impact … [such] impact is not irrelevant, but it is not the sole touchstone of an invidious racial discrimination." Arlington Heights, citing Washington v. Davis, 426 U.S. 229, 242. “A racially discriminatory intent, as evidenced by such factors as disproportionate impact, the historical background of the challenged decision, the specific antecedent events, departures from normal procedures, and contemporary statements of the decision makers, must be shown.”

Proving this discriminatory intent was what made disparate impact cases an invaluable weapon in the fight against housing discrimination. Arlington Heights held that proving discriminatory intent turned on three factors: 1) the impact of a discriminatory law or action by state authorities, 2) if the impact of such law or action is not determinative, other factors, such as legislative or administrative history, and 3) the shifting of the burden of proof to the state to prove it would have adopted the law or regulation at issue without discriminatory motives.

Gallagher v. Magner turned on whether these types of claims could still be brought under the Fair Housing Act. While some believe that such claims have serious issues pertaining to equal protection, the consensus in the fair housing community was that the court would have confirmed that disparate impact claim was a valid theory, but were not sure as to the what test the court would have chosen. Disparate impact continues to live to fight housing discrimination another day.

Jan 25, 2012

Legislators Pass Bills to Expedite Short Sale Process

On January 13, Illinois Senate Bill 1259 was signed by Governor Pat Quinn, requiring banks and lending institutions to respond to a short sale offer by a homeowner within 90 days. The bill also gives courts the authority to hold banks accountable to the 90 day response provision.

Previously, the court had no jurisdiction over banks, allowing them unprecedented control over the foreclosure process. "Families are not losing their homes to foreclosure because they are dead beats refusing to pay their mortgages," Illinois State Senator Silverstein said on a news release published on his website. "They are people who are struggling to get through the worst economic downturn since the Great Depression. Unfortunately, we are seeing banks stalling the process of a short sale in order to push through foreclosure proceedings, giving families limited options to get out of their mortgage debt."

In 2010, the number of new short sales late that year had increased nearly 83 percent compared to a year earlier. The Chicago Tribune reports that “as of last October, it was taking lenders an average of 674 days to process a foreclosure, according to Lender Processing Services, a Jacksonville, Fla., mortgage technology firm. That's more than 22 months, or almost two years from the time the process starts to when the property is actually repossessed. And lenders don't even start the process until an average of 391 days after last receiving a payment.”

With the Mortgage Forgiveness Debt Relief Act of 2007 set to expire in January 2013 (making it so a homeowners’ unpaid debt settled with a lender through a short sale transaction would be classified as income for tax purposes), the rising tide of the recession would leave some homeowners struggling for air. "Many individuals trying to get out of foreclosure present a short sale offer to the bank and the bank sits on the request causing hardship for the home owner," Senator Silverstein said. "Not knowing whether the bank will accept the offer causes distress and it is only proper for the bank to respond. This puts a duty on the bank to respond."

The Illinois Legislature passed Senate Bill 3739 last August, sponsored by State Senator Tony Munoz. SB 3739 codified as 735 ILCS 5/15 1502.5(C). The Bill extends the “30-30-30 Program” for three more years. This program affords homeowners who have been delinquent in their loans a little more time before they get foreclosed upon. Senate Bill 3739 is also known as the “Save Our Neighborhoods Act of 2010.”

Under this program, during the first 30 days a home loan is delinquent, no foreclosure proceedings may be initiated. After a loan is 30 days past due, the loan servicer is required to give notice to a borrower that he or she has 30 days to seek approved credit counseling before legal action may be taken. A borrower is then given another 30 day grace period to develop a sustainable plan to pay their loan on time, but only if he or she seeks counseling services within the allotted timeframe.

Together, these two acts seek to alleviate the pressure placed on homeowners during the worst financial crises this nation has seen since the Great Depression. "During these difficult economic times, we need to do everything we can to help people who have had to miss a mortgage payment stay in their homes," said Senator Munoz. "This legislation will provide help and services to keep people from going into foreclosure."