December 13 2010 (Jeff Alan)

The U.S. Department of Housing and Urban Development (HUD) announced that it is launching multiple investigations following a probe by a fair housing coalition that 22 lenders allegedly illegally denied mortgages to African American and Latino borrowers who should have qualified.

The National Community Reinvestment Coalition (NCRC) filed the complaint with HUD alleging that the loan activities of the mortgage originators showed that their home lending practices deny FHA- insured loans to African Americans and Latinos with credit scores as high as 640.

The FHA sets guidelines for loans that the government agency guarantees. Under its guidelines, borrowers with a credit score of 580 or higher can qualify for loans with down payments of as little as 3.5 percent or with a credit score above 500 with a down payment equaling 10 percent of the loan.

However, lenders can set higher standards for FHA-insured loans beyond what the agency requires, creating a higher hurdle to home ownership. Several lenders, including the two biggest, Bank of America Corp. and Wells Fargo & Co., require minimum credit scores between 620 and 640. Those two companies weren’t among those targeted by the NCRC.

Some of the mortgage originators in the complaint include MetLife Bank NA of Bridgewater, New Jersey, American Equity Mortgage Inc. of St. Louis and PHH Corp. of Mount Laurel, New Jersey. The complaint alleges the mortgage companies didn’t offer applications for U.S.-backed loans to borrowers with credit scores below 640. The higher standards disproportionately hurt blacks and Latinos, NCRC said.

According to HUD Assistant Secretary for Fair Housing and Equal Opportunity John Trasviña, “FHA is an important vehicle for Americans who want to purchase or refinance a home. We thank NCRC for bringing these complaints to HUD. For lenders to deny responsible home seekers this source of credit, without regard for their capacity to repay the loans, would raise serious fair housing concerns and, if proven, undermine our nation’s recovery efforts. HUD will take appropriate action against any lender found to be engaging in discriminatory practices.”

Prior to the recent downturn in the economy, FHA-insured mortgages comprised less than three percent of new home loans. Since the economic crisis, FHA and the Government-Sponsored Enterprises have insured or guaranteed nearly 95 percent of new mortgage loans being originated.

According to NCRC, an association of more than 600 community-based organizations that promote access to basic banking services, their fair lending “testers” evaluated the practices of national lenders, financial services corporations, and other regional and local FHA-approved lenders. In the complaints filed on December 7, NCRC states that lenders were chosen according to their market share and volume of FHA loans, as well as through discussions with community leaders.

HUD is required under the Fair Housing Act to impartially investigate allegations of housing discrimination and, during every phase of the investigations, attempt to settle complaints through conciliation efforts.

Tags: HUD, NCRC, discrimination, community-based organizations, mortgage loans, mortgage originators, fair housing act, FHA loans, home lending practices