NCRC is filing complaints against 22 lenders who have policies that are not in compliance with the FHA’s policy, alleging that they violate the Federal Fair Housing Act, because the policy has a disparate impact on African-American and Latino communities. NCRC filed the complaints with the U.S. Department of Housing and Urban Development, which has jurisdiction over the Federal Fair Housing Act. NCRC continues to investigate or discuss policy changes with other lenders, and may file future complaints.
“The housing crisis is not the fault of working class families, but they are the ones suffering the consequences of Wall Street’s malfeasance. They very people we should be helping are the ones lenders are closing the door on,” said Taylor.
NCRC conducted “mystery shopping” tests on the nation’s top FHA approved lenders. Of all lenders tested, 32, or 65 percent, refused to consider consumers with credit scores below 620. An additional 11, or 22 percent, refused to extend credit to consumers with credit scores below 640. Only 5, or 10 percent, had policies in place that served consumers with credit scores at 580 and up, in accordance with the underwriting policy of the Federal Housing Administration (FHA). The FHA provides lenders guarantees on its loans, which historically have financed the mortgages of working class families.
“By denying access to FHA loans to qualified, creditworthy individuals, without regard for the actual risk posed to the institution, lenders are discouraging the flow of credit and capital into working class communities, including minority neighborhoods. These policies amount to discrimination in violation of the federal Fair Housing Act,” said David Berenbaum, Chief Program Officer of the National Community Reinvestment Coalition.
NCRC also believes the lenders’ policies violate the Equal Credit Opportunity Act and the Community Reinvestment Act. NCRC wrote letters calling for an investigation into the practices of all of the lenders to the following agencies and regulatory bodies: the U.S. Departments of Justice and Housing and Urban Development, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.
Taylor said he is urging federal agencies and regulators to compel the lenders to offer FHA-insured loans to qualified borrowers in accordance with FHA policy.
The FHA program has historically served lower-income borrowers, consistent with its intent and purpose. Before the mid-2000s, when lenders began to weaken underwriting standards to produce more loans for Wall Street securitizers and investors, the FHA guaranteed loans for significant numbers of borrowers with low-to-moderate incomes and lower credit scores. In 2000, the agency was in the best financial shape in its history because of extremely low default rates among FHA borrowers. It boasted a $16.6 billion surplus.
FHA never insured “no doc” loans, option ARM loans, or interest only loans — all the products at the heart of the mortgage crisis. Since the housing crisis, FHA has instituted stronger underwriting and credit requirements, including a requirement for 10 percent down payments for consumers who have credit scores below 580, coupled with more policing of participating lenders, minimizing the risk to taxpayers.
The changes are working. FHA has reported significant reductions in serious delinquency rates and actual claim payments. An independent actuary lowered the estimate of actual claims against FHA by $3.7 billion following these reforms. FHA has also taken drastic steps to increase enforcement actions against lenders that fraudulently or irresponsibly originated loans in year past, which contributed to a higher rate of delinquency; FHA suspended some lenders, and withdrew approval for over 1,500 lenders. They also levied $4.27 million in penalties against non-compliant lenders.
“If our nation is to see the economic progress we all hope for, we must end this policy that has lenders addressing the mortgage needs of the elite, while ignoring the needs of blue collar Americans,” said Taylor.
NCRC has filed complaints against the following 22 lenders so far: