Government agencies crack down on fraudulent mortgage practices

George White, New America Media | 9/24/2015, 6 a.m.

The lawsuit and settlement is part of Schneiderman’s larger, ongoing investigations into mortgage redlining in New York. He said it was prompted by concerns that banks have halted or reduced lending activity in communities of color in the wake of the mortgage crisis and financial collapse of 2008.

The settlement is one of a number of court actions brought by cities and states against banks for alleged fraudulent lending practices. The cities of Baltimore, Chicago, Cleveland, Los Angeles and Memphis have recently filed suits against major banks - with mixed results. On the federal level, the U.S. Department of Housing and Urban Development last May reached an agreement with the Wisconsin-based Associated Bank to settle redlining allegations. Associated Bank agreed to invest $200 million in increased home lending in communities that were allegedly redlined. HUD said it was the largest redlining settlement in its history.

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HUD is now considering new allegations of discrimination-related realtor fraud, another kind of illegal activity in the housing market. The National Fair Housing Alliance, a Washington D.C.-based nonprofit, last week filed a complaint with HUD against a real estate company near Jackson, Mississippi, alleging that the realtor steered potential homebuyers to neighborhoods based on their race.

The housing alliance said its allegations are based on reports of those who took part in a “fair housing test,” whites and blacks who posed as potential home buyers. The complaint alleges that the company’s agents steered white home-seeking posers away from interracial neighborhoods in Jackson, a city with an African-American majority. Conversely, the black “testers” who inquired about properties in the Jackson area were often never called back and were generally provided very limited information, the complaint said.

A similar pattern of steering in many other cities was alleged in a report that the housing alliance produced nearly a decade ago. The study, partially funded by HUD, was based on fair housing tests in New York, Washington D.C., Chicago, Philadelphia, San Antonio, Detroit, Atlanta, Austin, Birmingham, Dayton, Mobile and Pittsburgh.

Despite being better qualified financially, the report said, black and Latino testers were shown fewer homes than their white peers, were often denied information about special incentives that would have made the purchase easier and were required to produce loan pre-approval letters and other documents when whites were not.

Pricing discrimination is another mortgage-market fraud and federal, state and city agencies are taking banks to court for allegedly engaging in the illegal practice. For example, a federal court earlier this month revived lawsuits in which the City of Miami accused three of the nation’s largest banks of predatory mortgage lending to African-American and Latino borrowers.

By a 3-0 vote, the 11th U.S. Circuit Court of Appeals in Atlanta said a lower court erred in dismissing the city’s claims under the federal Fair Housing Act, over what Miami called a decade of lending discrimination in its residential housing market.

Some of recent successful actions on bank discrimination claims are the result of joint-agency efforts on the federal level. For example, the Federal Trade Commission referred its investigation of Countrywide Financial Corporation to the U.S. Department of Justice and partnered with that agency in a joint probe that began in 2012.