The US Consumer Financial Protection Bureau (CFPB) and the US Justice Department (DOJ) have taken action against mortgage company Fairway Independent for illegal mortgage-lending discrimination against majority-Black neighbourhoods, in a practice known as “redlining”.
The CFPB and DOJ allege that Fairway illegally redlined Black neighbourhoods; discouraging people from applying for mortgage loans in the Birmingham metropolitan area’s Black neighbourhoods and failing to target those areas in its marketing and sales campaigns.
If entered by the court, the settlement announced on October 15th would require Fairway to pay a US$1.9m civil penalty to the CFPB’s victims relief fund. Fairway would also be required to provide US$7m for a loan subsidy programme to offer affordable home purchase, refinance and home improvement loans in majority-Black neighbourhoods.
“Not a relic of the past”
“The CFPB and DOJ are holding Fairway accountable for redlining Black neighbourhoods,” said CFPB Director Rohit Chopra. “Fairway’s unlawful redlining discouraged families from seeking loans for homes.”
“This settlement, and the over US$150m in relief the Justice Department has secured for communities across the country through our Combating Redlining Initiative, will help to ensure that future generations of Americans inherit a legacy of home ownership that they too often have been denied,” said Attorney General Merrick B. Garland. “This case is a reminder that redlining is not a relic of the past, and the Justice Department will continue to work urgently to combat lending discrimination wherever it arises and to secure relief for the communities harmed by it.”
Fairway Independent Mortgage Corporation is a non-depository mortgage company headquartered in Madison, Wisconsin. Fairway operates in the Birmingham area under the trade name MortgageBanc. In 2023, Fairway was the nation’s third largest mortgage lender, receiving over 100,000 applications and originating over US$24bn in loans. It is a closely held company and CEO, Steve Jacobson, is the majority owner.
While Fairway claimed to serve the entire metropolitan area of Birmingham, it concentrated all its retail loan offices in majority-white areas, directed less than 3% of its direct mail advertising to consumers in majority-Black areas from 2018-2020, and for years discouraged homeownership in majority-Black areas by generating loan applications at a rate far below its peer institutions.
Failure to address known signs of discrimination
Fairway’s own data showed that it was failing to serve majority-Black neighbourhoods in the Birmingham area, but, before October 2022, it took no steps to address redlining risk other than telling loan officers not to discriminate. Only 3.7% of Fairway’s applications from 2018 through 2022 were for properties in majority-Black areas, compared to 12.2% for Fairway’s peer lenders. This disparity was even higher in neighbourhoods with 80% or more Black residents, where Fairway made loans at less than an eighth of the rate of its peer lenders. Despite these figures, Fairway failed to adopt any written plan for marketing or growth to address the concern.
Redlining Black neighbourhoods
From 2015 through 2022, Fairway operated three retail loan offices and three loan production desks located in real estate offices in the Birmingham metropolitan area, all of which were in majority-white areas. Fairway also relied on referrals from real estate professionals and others to generate applications and the vast majority of Fairway’s referral sources and referred consumers were located in majority-white areas. Fairway predominantly directed its marketing to majority-white areas. By taking these actions, Fairway unlawfully discouraged mortgage loan applications for properties in majority-Black neighbourhoods.
Enforcement action
The proposed order filed by CFPB and DOJ would require Fairway to:
- Pay a US$1.9 m penalty which would be paid into the CFPB’s Civil Penalty Fund, also referred to as the victims relief fund.
- Provide US$7m for a loan subsidy programme: The order would require Fairway to offer home purchase, refinance and home improvement loans on a more affordable basis than otherwise available in majority-Black neighbourhoods in the Birmingham metropolitan area. The programme may provide lower interest rates, down payment assistance, closing cost assistance, or payment of initial mortgage insurance premiums.
- Pay at least US$1m to serve the neighbourhoods it redlined. To address some of the gap in credit access caused by its discriminatory activities, Fairway would be required to open or acquire a new loan production office or full-service retail office in a majority-Black neighbourhood in the Birmingham metropolitan area. The order would also require Fairway to pay at least US$500,000 for advertising and outreach, at least US$250,000 on consumer financial education, and at least US$250,000 on partnerships with one or more community-based or governmental organisations to serve neighbourhoods previously redlined by the company.
