HUD to Investigate 22 Lenders After Claims of Discrimination

The Department of Housing and Urban Development is launching multiple investigations into the practices of certain mortgage lenders to determine if their home loan policies illegally deny qualified African American and Latino borrowers access to credit the agency said on Thursday.

The investigation comes after the National Community Reinvestment Coalition (NCRC) filed 22 complaints 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.

Federal Housing Administration (FHA) guidelines allow mortgages to borrowers with credit scores above 580, provided the borrowers have down payments equaling 3.5 percent of the loan amount, or above 500, provided the borrowers have down payments equaling 10 percent of the loan amount.

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“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,” said HUD Assistant Secretary for Fair Housing and Equal Opportunity John Trasviña. “HUD will take appropriate action against any lender found to be engaging in discriminatory practices.”

John Taylor, NCRC President said last week, “the decision by some banks to not follow the FHA’s policy is cutting qualified borrowers off from accessing credit, and in doing so, causing harm to their ability to prosper, build wealth and for our economy to grow.”

Taylor argues that because the loans are 100% guaranteed, whether the borrower’s credit score is 580 or 780, loans with lower credit scores don’t pose additional risk to the company. “A lender is only at risk if they fraudulently or improperly originated the loan, against FHA’s underwriting criteria. As is the case across the secondary market, in that situation, the lender can be forced to buy back the bad loan,” he said.

 

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  • If true, the failure of lenders to lend on a racial basis is deplorable. However, the language used in some of the quotes are arguments which call into question some of the credit standards used by HECM lenders which exceed FHA standards.

    While racial discrimination clearly violates law, it will be interesting to see how these cases develop and if some of the language and concerns expressed above are adopted in HUD decisions in these matters.

  • If true, the failure of lenders to lend on a racial basis is deplorable. However, the language used in some of the quotes are arguments which call into question some of the credit standards used by HECM lenders which exceed FHA standards.

    While racial discrimination clearly violates law, it will be interesting to see how these cases develop and if some of the language and concerns expressed above are adopted in HUD decisions in these matters.

  • People with white, yellow and red skin are treated exactly the same … when the Investor requires more then HUD’s guidelines require, we encounter an “investor overlay”, making it more difficult to get a HUD based mortgage.

    I’ve been encountering it myself. 3 years ago I did an FHA Steamline refinance, and the entire process took 2 weeks. Last August I started another FHA Streamline refinance, and it’s still in process, but with a second Lender. The first Lender has too many overlays, but both of them are requiring “income” documentation, and an “appraisal”. HUD says they’re not required, but the Investors have overlays that say they are required.

    The most ridiculous Investor Overlay I can think of with HECM’s is Bank of America’s overlay for purchase HECM’s. Bank of America won’t allow a homeowner who wants to purchase another primary residence with a HECM to own another home, even if it’s been paid off for 30 years. It’d be nice to be able to rent it to generate additional retirement income, but the overlay doesn’t allow it. And it doesn’t matter what colour your skin is …

    I wish HUD would get rid of Investor Overlays entirely for FHA-insured mortgages. Like the article said – “A lender is only at risk if they fraudulently or improperly originated the loan, against FHA’s underwriting criteria.” Additional Overlays shouldn’t be required.

  • People with white, yellow and red skin are treated exactly the same … when the Investor requires more then HUD’s guidelines require, we encounter an “investor overlay”, making it more difficult to get a HUD based mortgage.

    I’ve been encountering it myself. 3 years ago I did an FHA Steamline refinance, and the entire process took 2 weeks. Last August I started another FHA Streamline refinance, and it’s still in process, but with a second Lender. The first Lender has too many overlays, but both of them are requiring “income” documentation, and an “appraisal”. HUD says they’re not required, but the Investors have overlays that say they are required.

    The most ridiculous Investor Overlay I can think of with HECM’s is Bank of America’s overlay for purchase HECM’s. Bank of America won’t allow a homeowner who wants to purchase another primary residence with a HECM to own another home, even if it’s been paid off for 30 years. It’d be nice to be able to rent it to generate additional retirement income, but the overlay doesn’t allow it. And it doesn’t matter what colour your skin is …

    I wish HUD would get rid of Investor Overlays entirely for FHA-insured mortgages. Like the article said – “A lender is only at risk if they fraudulently or improperly originated the loan, against FHA’s underwriting criteria.” Additional Overlays shouldn’t be required.

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