The CFPB and DOJ lost heavily in the Fairway redline case

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My career has been dedicated to fighting for civil rights for everyone I headed the residential section of the Communities US Department of Justice Law Division. The Division filed a record number of housing and lending discrimination cases during my tenure, including initial claims red line. In private practice, I continued to advise creditors on appropriate approaches to the fulfillment of obligations and defended those who were unfairly sued. I am proud of my work in the good fight. So it pains me to say this, but I believe that the federal government has not implemented discrimination laws in housing.

In October, the Consumer Protection Bureau and the Ministry of Justice took action to end what the agencies called Fairway Independent Mortgage Corporation illegal mortgage lending discrimination against black neighborhoods in greater Birmingham, Alabama. The CFPB and DOJ alleged that Fairway illegally redlined black neighborhoods.

I am not involved in this case, but the complaint is joint press release two departments initiated a criminal case against the creditor. At first glance, you might come away from this believing that the good guys really got the bad guys. But a closer look at the details of the case, including Fairway’s response, reveals precisely the kind of ill-advised government policies to combat housing discrimination that could harm minority households. and good creditors. Unless we insist on a more balanced approach, the actions of some regulators will harm the very communities the government seeks to benefit, as well as good lenders who share the government’s goals.

Both agencies say the lender’s intentional refusal to provide mortgage loans in minority residential areas prompted their charges. It is surprising that the government does not take into account How many the lender’s loans actually originated in minority areas. Neither the complaint, the proposed consent order, nor the government press release said how many loans Fairway made in minority neighborhoods or how that number compared to other lenders offering loans in that area. Fairway claims it has originated more loans in Birmingham’s minority neighborhoods than any other non-bank lender with a presence in the area. If this is true, the government should have completed its investigation and commended the company for its services in minority areas.

Rather than looking at the actual number of loans made in minority areas, the government’s approach is to assess the balance of a company’s loan distribution between minority and non-minority communities and compare the percentage to other lenders. In the Fairway case, the government alleges that 3.7% of Fairway’s loans were made to minorities, while 12.2% of loans were made by peers lenders were in minority areas; this is the basis for the accusation of redlining. Again, the government won’t tell us how much of Fairway loans made in minority areas and whether that number is greater or less than the number of loans that similar lenders have made in minority areas. In theory, and as Fairway argues, it may have been one of the largest originators of loans in minority areas compared to its peers, but has a lower racial balance percentage simply because it is a large lender in non-minority areas. And, if that’s the case, the problem of racial balance can be solved simply by making fewer loans in non-minority areas without lending more in minority areas, which is a strange method for solving the red line.

Government allegations of office placement and advertising may be relevant to explaining why a lender has low minority loan volume, but they are irrelevant if the lender actually has high minority loan volume.

Requiring all lenders to have a similar distribution of loans between minorities and non-minorities is a call to the type of racial balance or quotas that violate the Constitution, the Fair Housing Act, and the Equal Lending Opportunity Act. From a political point of view, the refusal of the government to recognize the actual volume of lending in minority regions is absurd. Why would the government want to sue the lenders that make the most loans in minority areas, accusing them of racially damaging reputational discrimination? Does the government really believe that this is advancing civil rights?

Public, private, and nonprofit housing and housing finance leaders must work together to combat government overreach and the dangerous impact that misapplication has on minority communities. We must support vigorous enforcement of civil rights laws, but misguided policies benefit no one.