Nov. 2015-Opportunity Knocks

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62 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest local edition local edition cFPB & dOJ Hit Hudson city With $25 million 'redlining' Fine The proposed consenT order, if passed, will seT The record for The largesT redlining seTTlemenT. NEW JERSEY // The Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) took action against Paramus, New Jersey-based Hudson City Savings Bank for discriminatory redlining prac- tices, according to an announce- ment in September. Hudson City was accused of denying access to mortgage loans from residents who dwell in majority-Black-and-Hispanic neighborhoods. Additionally, the CFPB and DOJ also alleged that the bank illegally provided un- equal credit access to neighbor- hoods in New York, New Jersey, Connecticut, and Pennsylvania. If the court approves the proposed consent order, Hudson City will pay the largest redlin- ing settlement in history. The fines will include $25 million in direct loan subsidies to qualified borrowers in the affected com- munities, $2.25 million in com- munity programs and outreach, and a $5.5 million penalty. "It is apparent to everyone that discriminatory practices in the mortgage market undermine people's ability to buy a home and build long-term wealth," said Richard Cordray, CFPB director. He added, "Without access to affordable credit to buy or improve a home, without a mortgage broker nearby, without a bank branch to offer basic services, neighborhoods deterio- rate in the long shadow cast by discriminatory practices. The in- tegrity of the consumer financial marketplace is diminished." According to the announce- ment, the bank was allegedly found in direct violation of the Equal Credit Opportunity Act (ECOA), which prohibits credi- tors from discriminating against applicants in credit transactions on the basis of characteristics such as race, color, and national origin. The DOJ also alleged that Hudson violated the Fair Housing Act. Hudson City allegedly found branches and loan officers, selected mortgage brokers, and marketed products that discour- aged potential borrowers in Black and Hispanic communities. The complaint alleged that these discriminatory practices went on from at least 2009 to 2013. "Hudson City Savings Bank structured its business op- erations to systemically avoid providing credit services in predominantly minority neigh- borhoods," said U.S. Attorney Paul J. Fishman of the District of New Jersey. "There is no room for such behavior in our banking system. In addition to paying $25 million for a loan subsidy program, today's settle- ment agreement will require the bank to take a number of con- crete steps to ensure that they improve access to responsible and affordable credit to qualified borrowers in Black and Hispanic neighborhoods." The joint action alleges that Hudson City illegally avoided and thereby discouraged con- sumers in majority-Black-and- Hispanic neighborhoods from applying for credit by: • Avoiding locating branches and loan officers in majority-Black- and-Hispanic communities. • Avoiding using mortgage brokers in majority-Black-and- Hispanic communities. • Excluding majority-Black-and- Hispanic communities from its marketing strategy. • Excluding majority-Black-and- Hispanic neighborhoods from its credit in assessment areas. In addition to the aforementioned fines Hudson City must also: • Offer full-service banking in majority-Black-and-Hispanic communities. • Expand assessment areas to include majority-Black-and- Hispanic communities. • Assess the credit needs of majority-Black-and-Hispanic communities. • Develop a fair lending compli- ance and training plan. HUd's Oig audit Finds loandepot Originated ineligible loans The california-based lender offered down paymenT assisTance gifTs ThaT do noT comply wiTh fha rules. CALIFORNIA // The Office of the Inspector General (OIG) of HUD found that loanDepot, LLC, headquartered in Foothill Ranch, California, originated loans using ineligible down pay- ment assistance gifts out of HUD Federal Housing Administration (FHA) requirements, according to a recent audit. The audit was done based on a referral from HUD's Quality Assurance Division detailing a sepa- rate lender that originated FHA- insured loans containing ineligible down payment assistance gifts. The OIG found that loanDe- pot's FHA-insured loans using Golden State down payment gifts were not always in HUD compliance. This placed unnecessary risk on the FHA insurance fund, including potential losses of $5.5 million for 62 loans with ineli- gible gifts and $16.1 million for 178 loans that likely contained ineligible gifts. Looking one year ahead, this is equal to at least $16 million in potential losses for loans originated with ineligible gifts and with higher risk of loss in the first year. The company also charged bor- rowers $13,726 in fees that were not "customary or reasonable," the audit said. This happened because of loanDepot's reliance on Golden State, acceptance of the Platinum Downpayment Assistance Program structure, and a lack of due diligence conducted with regard to premium pricing, gifts, and fees. FHA borrowers were also given higher than market inter- est rates in exchange for Golden State downpayment assistance. Thus, borrowers were forced to make higher mortgage payments due to the ineligible loans, which included the burden of funding the downpayment assistance program through the premium interest rate. In addition, loanDepot al- lowed ineligible Golden State down payment assistance gifts for at least 235 loans totaling $42.6 million. The OIG recommended HUD "determine legal sufficiency to pursue civil and administra- tive remedies against loanDepot for incorrectly certifying that mortgages were eligible for FHA mortgage insurance." OIG also recommended HUD require loanDepot to: • Stop originating FHA loans with the ineligible gifts • Indemnify HUD for the 62 loans with ineligible gifts • Indemnify HUD for loans that likely contain ineligible gifts from the remaining 233 loans • Reimburse borrowers for $13,726 in fees that were not custom- ary or reasonable • Reduce the interest rate for borrowers who received ineli- gible gifts • Reimburse borrowers for over- paid interest as a result of the premium interest rate • Update all internal controls to include specific HUD require- ments on gifts, premium rates, and allowable fees SECONDARY MARKET

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