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1/09/2014

NMLS Mortgage Laws

I







NMLS Testing
Mortgage Banker Mortgage Broker Laws and Regulations
 

Corrective action is required “…when the self-test shows that it is more likely than not that a violation occurred, even though no violation has been formally adjudicated” (12 C.F.R. §1002.15(c)(1)).  In order to secure the privilege that comes with self-testing and corrective action, the corrective action must be “appropriate.” 

Regulation B provides guidelines for determining whether a creditor’s response to potential ECOA violations is appropriate.  First, the corrective action must be “…reasonably likely to remedy the cause and effect of a likely violation…” (12 C.F.R. §1002.15(c)(2)). 

regulations state that corrective action is reasonably likely to remedy the cause and effect of a violation if it:

  • Identifies “…the policies and practices that are the likely cause of the violation…” and
  • Assesses the “…extent and scope of any violation…”

(12 C.F.R. §1002.15(c)(2))

If self-testing reveals evidence of an actual or potential compliance failure, the creditor must determine whether it is necessary to provide remedial relief.  If the self-test involved the use of testers, and one of the testers received discriminatory treatment, the creditor is not required to provide remedial relief to the tester (12 C.F.R. §1002.15(c)(3)(i)). 

However, if the self-test shows that a credit applicant’s rights “…were more likely than not violated,” then the creditor is required to provide remedial relief to that applicant, unless the statute of limitations on an action available to the applicant has expired (12 C.F.R. §1002.15(c)(3)(ii-iii)).

In 2009, the DOJ, the Department of Housing and Urban Development (HUD), and the federal banking regulatory agencies wrote a Statement of Policy to address concerns regarding evidence of discriminatory treatment experienced by prospective homebuyers and borrowers.  This Statement includes answers to questions asked by financial institutions, including answers to inquiries regarding what a lender should do if self-testing shows evidence that lending discrimination exists.

Statement included some very useful and practical suggestions, which include:

·         Determining whether the discriminatory act or practice was the result of faulty lending policies, poor implementation of lending policies, or an isolated incident

·         Correcting policies or practices that may have led to a discriminatory act or practice

·         Disciplining and training employees involved

·         Considering the use of a new marketing strategy that may reach out to underserved minorities in the lender’s market

·         Improving oversight and internal auditing programs [1]

 





[1] Department of Housing and Urban Development and Department of Justice, et al. “Policy Statement on   Discrimination in Lending.”  3 Dec. 2009. Question 6. http://www.fdic.gov/regulations/laws/rules/5000-3860.html

action, noting that while it does not “expunge or extinguish legal liability for violations of the law,” proactive measures that include self-testing and corrective action “…will be considered as a substantial mitigating factor by the primary regulatory agencies when contemplating possible enforcement actions.” [1]  The Statement also notes that self-testing and self-correction are regarded as a “substantial mitigating factor” when the DOJ and HUD determine whether to seek penalties in an action for ECOA violations.

 

 
 
 

Regulation B includes a recordkeeping requirement that applies specifically to records generated during a self-test.  This provision requires creditors to “retain all written or recorded information about the self-test” for a period of 25 months (12 C.F.R. §1002.12(b)(6)).  A creditor must retain records longer than 25 months if it has received notice that it is under investigation for a potential violation of ECOA or if it has been served with a summons for a civil action.  If the creditor is subject to an investigation or a party to a lawsuit, it must keep the related records until the action with a regulator or court is resolved. 

if the creditor has taken the corrective action necessary to protect these records as privileged and has not lost the privilege, neither government agencies nor credit applicants can use this information in administrative or judicial proceedings.  There is a limited exception if a violation of ECOA or Regulation B is admitted by the creditor or proven. After admission or proof of a violation has occurred, information from a self-test may be used “to determine a penalty or remedy” (12 C.F.R. §1002.15(d)(3)).

The record retention requirement under ECOA is:

24 months

25 months

12 months

36 months

Creditors must be careful not to take actions that may result in losing the right to protect information generated during a self-test.  A loss of privilege will occur if a creditor:

  • Voluntarily discloses information from a self-test to a government agency, credit applicant, or to the public
  • Discloses information from a self-test as a defense to charges that the creditor has violated ECOA or Regulation B
  • Fails to produce information from a self-test or fails to comply with recordkeeping requirements and cannot, therefore, produce the information in order to determine if the information is privileged

(12 C.F.R. §1002.15(d)(2))

but which of the following actions by a creditor may lead to the loss of the right to protect information from a self-test as privileged?

Presenting information from a self-test to defend charges of ECOA violations

Voluntarily sharing the information with the public

Voluntarily sharing the information with a government agency

Publishing the information in a report that is shared only with the creditor’s Board of Directors in a closed meeting

may preempt or override state laws against credit discrimination if the state laws are inconsistent with the federal laws.  The most important information to remember about state laws that are inconsistent with federal laws is:

  • A state law is not inconsistent if it is more protective of credit applicants than the federal law
  • A state law is inconsistent with the federal law if it:
    • Requires or permits a practice prohibited by ECOA
    • Prohibits the individual extension of consumer credit to both parties to a marriage if each spouse individually and voluntarily applies for such credit
    • Prohibits the collection of data necessary for complying with ECOA
    • Prohibits asking about age “…in an empirically derived, demonstrably and statistically sound credit scoring system to determine a pertinent element of creditworthiness, or to favor an elderly applicant
    • Prohibits inquiries necessary to extend credit through a special purpose program

States may apply for exemption from the requirements of ECOA “for any class of credit transactions within the state.” This exemption may be granted when:

  • The state law requirements are “substantially similar” to those in ECOA and Regulation B or provide greater protection than that provided under federal law, and
  • There is sufficient provision for state enforcement

(12 C.F.R. §1002.11(e))

Although exemptions may be granted for some provisions of ECOA and Regulation B, they cannot extend to the civil liability and enforcement provisions, meaning that creditors will continue to be subject to federal enforcement and liability under ECOA, even if state law requirements apply to their practices.

Max and his wife have recently divorced. Max’s ex-wife earns a significantly greater income than Max earns, and the home that they shared was purchased based on her creditworthiness. Max is living in the home until he succeeds in selling it. In the meantime, he is hoping to restart his life by starting his own business repairing personal computers. In order to start his business endeavor, Max goes to the bank to withdraw some funds from a home equity line of credit that he and his ex-wife opened while they were married. He learns that although the account was never used, the credit line has been reduced substantially. The bank manager cites Max’s low credit score as a factor that contributed to the change in terms. When Max asks his lawyer if the bank can legally reduce the line of credit, he learns that:

ECOA permits a reduction in credit when the credit plan was based on the income of the spouse, and the creditor has information indicating that the account holder’s income may not support the credit available

Creditors are prohibited from changing the terms of an open-end credit plan due to a change in marital status of a co-account holder

Creditors are allowed to terminate or change the terms of an open-end credit plan when co-account holders separate or divorce

The creditor could not legally change the terms of the credit line as long as Max was the lawful owner of the home

  

Violations of ECOA can result in actual and punitive damages.  Liability for punitive damages is limited to:

  • Non-governmental entities
  • $10,000 in individual actions
  • $500,000 or 1% of the creditor’s net worth in class actions

(12 C.F.R. §1002.16(b))

Punitive damages are awards of money to a plaintiff above and beyond the actual amount lost as a result of discrimination. Courts do not award punitive damages capriciously, however, and will require the plaintiff to show intentional, malicious or willful conduct on the part of the defendant.

Punitive damages awards are discretionary, meaning the judge is not required to award them even after a showing of malicious conduct. However, the ECOA only requires a finding of intentional conduct (as opposed to accidental or negligent conduct) for an award of punitive damages to be proper. Opinions have surmised this lower standard to be an attempt by lawmakers to increase the incentive for credit compliance. Most federal and state statutes do not allow punitive damages for mere intentional conduct absent a showing of malice or wanton disregard.

Liability for punitive damages under the ECOA is limited to all of the following, except:

$100,000 in individual actions

1% of the creditor’s net worth in class actions

Non-governmental entities

$500,000 in class actions

statute of limitations for a civil action for a violation of ECOA is five years, and the five-year period is measured from the date the violation occurred (12 C.F.R. §1002.16(b)(2)).  However, if the Attorney General or a governmental agency, such as the CFPB or FTC, brings an action for an ECOA violation, an applicant who has been subject to discrimination must bring his/her action no later than one year after the commencement of the Attorney General or agency action (15 U.S.C. §1691E(f)((2)).

Waiver in Litigation

As previously explained, there are a number of federal agencies responsible for enforcing the provisions of the ECOA. There are times when an agency will commence an action against a lender or creditor on behalf of a group of plaintiffs claiming discrimination. When this happens, the agency will attempt to join as many affected plaintiffs as possible in the litigation to ensure that everyone facing discrimination receives their day in court. If a plaintiff wishes to join a class action with a federal agency, the statute of limitations is extended an additional year. For example, if a plaintiff is discriminated against by Bank A in June 2009, the Attorney General has until June 2011 to commence a lawsuit against Bank A. Thereafter, the plaintiff has until June 2012 to join in the lawsuit, giving him/her an additional year to bring a claim.

The statute of limitations for violations of ECOA is:

Three years from the date of occurrence

Four years from the date of occurrence

One year from the date of occurrence

Five years from the date of occurrence

Tolling is a concept that refers to a “stopping of the clock” with regard to the ECOA’s statute of limitations. If the statute is “tolled,” this means that the tolling period does not count toward the two- or three-year statutory limit. Certain situations affecting the plaintiff’s ability to file a claim will toll the statute. Also, circumstances out of the plaintiff’s control may work to toll the statute.

Equitable tolling refers to a situation in which the plaintiff was unknowingly ignorant to the filing deadline due to trickery or deception on the part of the adversary. In these cases, the defendant leads the plaintiff to believe that the statutory period has passed and it is too late to file. The courts look favorably upon plaintiffs in this situation and will usually grant an extension, provided the evidence supports a finding that the plaintiff made attempts to preserve his/her rights and was not willfully ignorant to filing deadlines.

Under general principles of law, a statute of limitations is also tolled during periods of incapacity

This is a concept that refers to “stopping the clock” with regard to ECOA’s statute of limitations.

Tolling

Liability

Waiver in litigation

Adverse action

Another issue surrounding the ECOA involves the use of binding arbitration clauses found within loan agreements between lenders and borrowers. Under typical circumstances, a party to a loan agreement is free to file a potential claim in state or federal courts for relief and possible money damages. This is known as litigation and is not uncommon in the lending industry. What is becoming common practice by lending institutions is the contractual requirement that all parties with a claim against the lender must submit to binding arbitration in front of a non-judicial arbiter.

These arbitration provisions are often buried in the loan documents, and many borrowers unknowingly agree to waive their right to resolve disputes before a state or federal judge. The problem with arbitration is that the parties are responsible for paying exorbitant costs to a private arbiter, and corporations will purposely choose an arbitration site that requires extensive travel for the borrower plaintiff. These provisions are calculated to dissuade borrowers from pursuing relief from lending institutions despite their rights under the ECOA.

This practice has been challenged in a number of cases, and plaintiffs have relied upon the prohibition against mandatory arbitration provisions found under the Truth-in-Lending Act (TILA) as ammunition to invalidate binding arbitration agreements. In one case, the plaintiff signed a loan agreement for a small personal loan. Attached to the loan agreement was a document titled “ARBITRATION AGREEMENT,” which the plaintiff signed and effectively waived his right to resolve disputes in a judicial arena. The agreement specifically stated that “it applies to ‘all claims and disputes arising out of, in connection with, or relating to’ ... any claim or dispute based on a federal or state statute.”[1]

 





[1] Bowen v. First Family Financial Services, Inc., 233 F.3d 1331 (11th Cir. 2000).

When a dispute arose, the plaintiff drew a connection between § 1691(a)(3) of the ECOA (“It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction….because the applicant has in good faith exercised any right under this chapter”) and language in the TILA purporting to protect a consumer’s right to litigate a claim before a judge, as opposed to submitting to mandatory arbitration. The court disagreed with the plaintiff’s assertions to conclude that, by studying Congress’s intent in enacting TILA, creditors are not precluded from requiring consumers to submit to arbitration, and it is lawful under the ECOA to require a waiver of judicial remedies.

Another case examined the high costs of arbitration and the corporate incentive to use arbitration agreements as a way to dissuade consumers from raising a dispute. In this case, the U.S. Supreme Court, split 5-4, reasoned that a binding arbitration agreement between a consumer and his/her lender was not unenforceable because it did not disclose the costs associated with submitting to arbitration. While it may be true that the costs of arbitration, which are much higher than the filing fees in a state or federal courthouse, may preclude a consumer from seeking redress, that fact alone does not invalidate binding arbitration clauses.

Despite the Supreme Court’s ruling that a lack of information about fees and costs associated with arbitration will not render a contract unenforceable, state legislatures are free to require this disclosure if public policy supports such a law. States are not permitted to ban binding arbitration clauses all together, but can support consumers by limiting these clauses and ensuring consumers are fully informed that they are waiving their right to judicial review. [1]

 





[1] Green Tree Financial Corp. – ALA v. Randolph, 531 U.S. 79 (2000).

is the term for a practice used by corporations to avoid dispute resolution before a state or federal judge, instead using a private process at a designated site that may be difficult and expensive for the borrower to reach.

Binding arbitration

Binding litigation

Non-judicial resolution

Litigation
1. ECOA only prohibits discriminatory practices in transactions for personal credit needs.
 True
 False
2. Reverse redlining targets racial minorities, elderly, immigrant, and other vulnerable populations by extending oppressive lending terms likely to result in default and foreclosure.
 True
 False
3. Within 45 days of receipt of a completed application, creditors must notify consumers in writing of action taken.
 True
 False
4. ECOA protects consumers from the time that they begin shopping for credit until their applications are approved and credit is extended.
 True
 False
5. Within the CFPB, the Division of Nondiscrimination and Consumer Protection is responsible for issues that relate to the access of all consumers to financial products and services.
 True
 False

ECOA only prohibits discriminatory practices in transactions for personal credit needs.
 True
 False
2. Reverse redlining targets racial minorities, elderly, immigrant, and other vulnerable populations by extending oppressive lending terms likely to result in default and foreclosure.
 True
 False
3. Within 45 days of receipt of a completed application, creditors must notify consumers in writing of action taken.
 True
 False
4. ECOA protects consumers from the time that they begin shopping for credit until their applications are approved and credit is extended.
 True
 False
5. Within the CFPB, the Division of Nondiscrimination and Consumer Protection is responsible for issues that relate to the access of all consumers to financial products and services.
 True
 False
When obtaining information on ethnicity, sex, marital status, and age for monitoring purposes, creditors must advise applicants that the information is requested by the federal government for monitoring purposes and that the creditor must provide information on ethnicity, race, and sex.
 True
 False
7. Creditors must retain records related to a transaction for a period of 12 months, measured from the date that a creditor notifies an applicant of action taken on an application or notifies an applicant that an application is incomplete.
 False
 True
8. As long as an applicant is old enough to enter a binding contract (the age is 18 in most states), creditors are prohibited from taking an applicant’s age into account when evaluating his/her application for credit.
 False
 True
9. Creditors are prohibited from evaluating married and unmarried applicants differently.
 False
 True
10. When evaluating an application, creditors are permitted to make assumptions about the likelihood that the applicant will bear or raise children because it has a direct impact on income.
 False
 True
Within the CFPB, the Division of Nondiscrimination and Consumer Protection is responsible for issues that relate to the access of all consumers to financial products and services.
  Your Answer: True
  
Feedback: False - Within the CFPB, the Office of Fair Lending and Equal Opportunity is responsible for issues that relate to the access of all consumers to financial products and services.
 
6. When obtaining information on ethnicity, sex, marital status, and age for monitoring purposes, creditors must advise applicants that the information is requested by the federal government for monitoring purposes and that the creditor must provide information on ethnicity, race, and sex.
  Your Answer: False
  
Feedback: This statement is true.
 
1. A notice of action taken is due within ____ days after a creditor’s receipt of a completed application.
 60
 90
 30
 35
2. Julie is divorced, and she is trying to buy a condominium unit for herself and her two young children. She is using her income as a teacher and her alimony and child support payments to qualify for her home loan. The loan officer reviews Julie’s bank statements and sees that she does not regularly receive her alimony and child support payments and that there are months when she does not receive these payments at all. What does Regulation B permit the loan officer to do with this information?
 Regulation would only allow the loan officer to consider the inconsistency of these payments if they were the applicant’s only source of income
 Regulation B does not permit the loan officer to do anything with this information since using it would constitute making a credit decision on a prohibited basis
 Regulation B allows the loan officer to consider the consistency of these support payments
 Regulation B does not permit the loan officer to do anything with this information since using it would violate prohibitions against making assumptions about an applicant’s plans for child rearing
3. A creditor’s inquiries about a credit applicant’s marital status are:
 Allowed when the applicant is seeking secured credit, such as a mortgage loan
 Always allowed
 Always prohibited
 Allowed when the applicant is seeking individual unsecured credit, such as a credit card
4. Under Regulation B, age is a factor that:
 May be used as a predictive variable in evaluating creditworthiness, as long as an applicant’s age is not assigned a negative value
 May only be considered in cases in which the applicant may not be old enough to enter a binding contract
 May always be considered when evaluating an applicant’s request for credit
 May never be considered when evaluating an applicant’s request for credit
5. Margaret is a loan officer in the mortgage lending department for a bank. She is taking an application over the phone, and cannot, therefore, determine the ethnicity or race of the applicant for HMDA data collection purposes. Because the applicant has a raspy voice, she is not even certain of the applicant’s gender. Staff Commentary to Regulation B states that in this situation:
 Margaret is not required to request that the applicant provide the monitoring information
 Margaret must request that the applicant provide the monitoring information
 Margaret must follow up with a paper application
 Margaret must schedule a meeting with the applicant at the bank
1. A notice of action taken is due within ____ days after a creditor’s receipt of a completed application.
 60
 90
 30
 35
2. Julie is divorced, and she is trying to buy a condominium unit for herself and her two young children. She is using her income as a teacher and her alimony and child support payments to qualify for her home loan. The loan officer reviews Julie’s bank statements and sees that she does not regularly receive her alimony and child support payments and that there are months when she does not receive these payments at all. What does Regulation B permit the loan officer to do with this information?
 Regulation would only allow the loan officer to consider the inconsistency of these payments if they were the applicant’s only source of income
 Regulation B does not permit the loan officer to do anything with this information since using it would constitute making a credit decision on a prohibited basis
 Regulation B allows the loan officer to consider the consistency of these support payments
 Regulation B does not permit the loan officer to do anything with this information since using it would violate prohibitions against making assumptions about an applicant’s plans for child rearing
3. A creditor’s inquiries about a credit applicant’s marital status are:
 Allowed when the applicant is seeking secured credit, such as a mortgage loan
 Always allowed
 Always prohibited
 Allowed when the applicant is seeking individual unsecured credit, such as a credit card
4. Under Regulation B, age is a factor that:
 May be used as a predictive variable in evaluating creditworthiness, as long as an applicant’s age is not assigned a negative value
 May only be considered in cases in which the applicant may not be old enough to enter a binding contract
 May always be considered when evaluating an applicant’s request for credit
 May never be considered when evaluating an applicant’s request for credit
5. Margaret is a loan officer in the mortgage lending department for a bank. She is taking an application over the phone, and cannot, therefore, determine the ethnicity or race of the applicant for HMDA data collection purposes. Because the applicant has a raspy voice, she is not even certain of the applicant’s gender. Staff Commentary to Regulation B states that in this situation:
 Margaret is not required to request that the applicant provide the monitoring information
 Margaret must request that the applicant provide the monitoring information
 Margaret must follow up with a paper application
 Margaret must schedule a meeting with the applicant at the bank

1. A creditor’s inquiries about a credit applicant’s marital status are:
 Always allowed
 Allowed when the applicant is seeking secured credit, such as a mortgage loan
 Always prohibited
 Allowed when the applicant is seeking individual unsecured credit, such as a credit card
2. A state law is inconsistent with and preempted by ECOA if it is:
 Less protective than ECOA
 Includes an additional protected class
 More protective than ECOA
 Permits the implementation of special credit programs
3. The most current implementing regulations for ECOA are known as:
 Regulation B
 Regulation Z
 The CFPB ECOA regulations
 
 
 Regulation C
4. Margaret is a loan officer in the mortgage lending department for a bank. She is taking an application over the phone, and cannot, therefore, determine the ethnicity or race of the applicant for HMDA data collection purposes. Because the applicant has a raspy voice, she is not even certain of the applicant’s gender. Staff Commentary to Regulation B states that in this situation:
 Margaret must request that the applicant provide the monitoring information
 Margaret must follow up with a paper application
 Margaret must schedule a meeting with the applicant at the bank
 Margaret is not required to request that the applicant provide the monitoring information
5. In order to ensure that they are maintaining an “empirically derived, demonstrably sound credit scoring system,” creditors must revalidate the system:
 A minimum of once every 24 months
 Frequently enough to ensure that it meets recognized professional statistical standards
 Annually
 Whenever the Federal Reserve lowers interest rates
In order to ensure that they are maintaining an “empirically derived, demonstrably sound credit scoring system,” creditors must revalidate the system:
  Correct Answer: Frequently enough to ensure that it meets recognized professional statistical standards
  
Your Answer: Annually
  
Feedback: Although Regulation B requires periodic evaluations, the rules do not state how often these evaluations must occur, but the Staff Commentary to the rules recommends revalidation frequently enough to ensure that the credit scoring system meets recognized professional statistical standards.
 

history of the inception of the Fair Housing Act is long and sordid, beginning much before its passage on April 11, 1968. More than 100 years before the enactment of the Fair Housing Act, the Civil Rights Act of 1866 was the first federal housing law and provided that all citizens should have equal rights “without distinction of race or color, or previous condition of slavery or involuntary servitude.”[1] In 1968, the United States Supreme Court interpreted the Civil Rights Act to apply to all real estate transactions, thereby greatly expanding the legal remedies available to victims of housing discrimination.

Never before had Americans been protected from the sinister and malevolent effects of discrimination in housing and it was not until the passage of the Fair Housing Act that minority groups began to enjoy fair and equal access to safe and affordable housing.





[1] PBS. “The 1866 Civil Rights Act.” http://www.pbs.org/wgbh/amex/reconstruction/activism/ps_1866.html

 

purpose of the Fair Housing Act is “…to provide, within constitutional limitations, for fair housing throughout the United States” (42 U.S.C. Section 3601).  Congress adopted the Fair Housing Act during the Civil Rights Movement.  The Fair Housing Act is located in Title VIII of the Civil Rights Act of 1968.  The Fair Housing Act was actually the first law that Congress enacted to address redlining and other issues related to fair housing and nondiscriminatory mortgage lending practices. Congressional efforts to pass the law failed in 1966 and 1967, and its ultimate passage rose from the tragic death of Dr. Martin Luther King, Jr. 

Overview of the Fair Housing Act Part 3
The Department of Housing and Urban Development describes the historic passage of the law:
when the Rev. Dr. Martin Luther King, Jr. was assassinated on April 4, 1968, President Lyndon Johnson utilized this national tragedy to urge for the bill's speedy Congressional approval. Since the 1966 open housing marches in Chicago, Dr. King's name had been closely associated with the fair housing legislation. President Johnson viewed the Act as a fitting memorial to the man's life work, and wished to have the Act passed prior to Dr. King's funeral in Atlanta. [1]
 



[1] U.S. Department of Housing and Urban Development.  “History of Fair Housing.”  http://portal.hud.gov/hudportal/HUD?src=/program_offices/fair_housing_equal_opp/aboutfheo/history
Handicap and familial status were added to the list of prohibited factors for consideration in a lending or housing decision under the Fair Housing Act in:

1988

1976

2008

2009
Overview of the Fair Housing Act Part 7
Despite great strides to eradicate discrimination and to help minorities find suitable housing, there is currently no fundamental right to housing in the United States. International treaties and codes recognize shelter and safety as a fundamental human right, however United States lawmakers have failed to codify a similar statute. Interestingly, the Committee on the Elimination of Racial Discrimination, a national organization, viewed the United States as lagging behind other nations with regard to housing discrimination, and encouraged the states to work harder to meet the housing needs of all segments of the population, “including low-income persons belonging to racial, ethnic and national minorities.”[1]
 



[1] National Law Center on Homelessness & Poverty. “‘Simply Unacceptable’: Homelessness and the Human Right to Housing in the United States.” June 2011. http://www.nlchp.org/content/pubs/SimplyUnacceptableReport
The national tragedy that precipitated the passage of the Fair Housing Act was:

The assassination of Senator Robert F. Kennedy

The assassination of Medgar Wiley Evers

The assassination of President John F. Kennedy

The assassination of Dr. Martin Luther King
Which one of the following statements most accurately describes the types of transactions that are subject to protection under the Fair Housing Act?

The Fair Housing Act protects consumers from discrimination in the sale, lease, and lending transactions involving both residential and commercial real estate

The Fair Housing Act only protects consumers from discrimination in the sale, lease, and lending transactions involving Section 8 housing

The Fair Housing Act protects consumers from discrimination in transactions involving the sale, lease, or financing of a dwelling

The Fair Housing Act only protects consumers from discrimination in transactions involving the sale, lease, or financing of a primary residence
Which of the following statements is accurate?

ECOA is the fair lending law that prohibits discriminatory practices in the secondary market

Both ECOA and the Fair Housing Act prohibit discriminatory practices in the secondary market

The Fair Housing Act is the law that prohibits discriminatory practices in the secondary market

Neither ECOA nor the Fair Housing Act address discriminatory practices in the secondary market

protected classes, or those individuals or groups of individuals who will receive protection under the Fair Housing Act are not identical to those established under ECOA.  Under the Fair Housing Act, the protected classes include:

  • Race or color
  • National origin
  • Religion (there is case law that supports findings that this protected class includes atheists and agnostics)
  • Sex
  • Familial status
  • Handicap

Any housing or lending decisions that discriminate against members of a protected class are in violation of the law. 

In addition to the protected classes listed above, there have been efforts in Congress to pass a bill that would amend the Fair Housing Act to add “marital status” and “source of income” as prohibited bases for housing discrimination, and to add sexual orientation and gender identity as protected classes. 

class that ECOA expressly names as a protected class and that the Fair Housing Act does not expressly name as a protected class is:

Marital status

National origin

Race

Religion
1999 case, a minority group challenged the building of a new highway bypass under the Fair Housing Act. The plaintiffs alleged that African American residents did not receive individual notice that the highway was in the works or that public meetings were being held, even though similarly-situated white residents did.
They further claimed that the Environmental Impact Statements were based on inaccurate data, ignored socioeconomic impacts, and failed to adequately compare alternative locations for the highway. Plaintiffs further contended that the highway would have a disparate adverse impact on their African American community because the highway will serve as the northern boundary to their community, closing off expansion in that direction and locking African Americans into what is allegedly the only neighborhood open to them.[1]
 



[1] Jersey Heights Neighborhood Assoc. v. Glendening, 174 F.3d 180 (4th Cir. 1999).
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HUD’s new policy to protect members of the LGBT community in housing and lending transactions is:
 

Reflective of a trend in over 20 states to adopt laws to end discriminatory practices against LGBT individuals

The first such rule in the country

A rule that HUD had to adopt to reflect amendments to the Fair Housing Act

Only applicable to transactions involving Section 8 housing
 
 

court disagreed with the assertion that the Fair Housing Act applied to the plaintiffs and reasoned that the highway did not make housing unavailable, and the group was free to settle and live wherever they chose. In other words, the erection of the highway system did not constitute a “housing decision” for purposes of the statute. Despite the plaintiff’s assertion that the highway would disparately affect housing for racial minorities, the causal connection between the roadway and any adverse effects was too thin to warrant a finding that the plaintiffs were discriminated against in terms of their housing.

Other cases have tested the bounds of the Fair Housing Act, purporting to stretch the causal connection beyond that of renting and sale of property decisions. The Fair Housing Act and HUD’s Fair Housing regulations include exemptions that excuse compliance with the law in specific circumstances.  These exemptions address the sale and rental of housing and are unlikely to be relevant to mortgage lending transactions, but as professionals who are involved in the multi-step process of helping consumers to purchase homes, the general knowledge of lenders, mortgage brokers, and loan originators should include an awareness of these exemptions.  The Fair Housing Act does not apply to:

·         Religious Organizations:Religious organizations are allowed to limit the sale, rental, or occupancy of housing that they own and operate for non-commercial purposes to persons of the same religion, unless membership in the religion is restricted on the basis of race, color, or national origin

·         Private Clubs:  Private clubs are allowed to limit access to lodging that they own and operate for non-commercial purposes to their members

(24 C.F.R. Section 100.10 (a))

  • Limit the applicability of reasonable local, State or Federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling (commonly found in zoning ordinances)
  • Prohibit conduct against a person because the person was convicted of the illegal manufacture or distribution of drugs
  • Limit the sale or rental of a single-family home by an owner provided:
    • The owner does not own or have any interest in more than three single family homes at one time
    • The house is sold or rented without the use of a real estate broker, agent or salesperson or the facilities of any person in the business of selling or renting dwellings. If the owner selling the house does not reside in it at the time of the sale or was not the most recent resident of the house prior to such sale, the exemption in this paragraph (c)(1) of this section applies to only one such sale in any 24-month period.

(24 C.F.R. Section 100.10 (a-c))

Under what circumstances would a religious organization not be exempt from the Fair Housing Act with regard to its policies on selling, renting, and occupying housing?

The organization only rents housing and does not sell it

The organization only sells or leases to members of that religion

Religious organizations are never exempt from the Fair Housing Act

The religion limits membership based on national origin
F.R. § 100.306, the following factors are considered by the courts when determining if a housing community is in violation of the Fair Housing Act by restricting homeownership or rentals to those of a certain age group:
  • The manner in which the housing facility or community is described to prospective residents
  • Any advertising designed to attract prospective residents
  • Lease provisions
  • Written rules, regulations, covenants, deeds or other restrictions
  • The maintenance and consistent application of relevant procedures
  • Actual practices of the housing facility or community
  • Public posting in common areas of statements describing the facility or community as housing for persons 55 years of age or older
imposed by HUD state that this exemption requires that at least 80% of the occupied units be occupied by at least one person 55 or older. The remaining 20% of the units may be occupied by persons under 55, and the community/facility may still qualify for the exemption.
 
Only the Fair Housing Act’s prohibitions against discriminatory advertising apply to:
·         Owner/Resident in a Dwelling with Four or Less Units:  If an owner lives in one unit of a dwelling that has four or less units and does not use the services of a real estate agent to rent or sell the units, he/she is not required to comply with the Fair Housing Act
·         Private Owner of No More than Three Single-Family Homes:  A property owner with an interest in no more than three single family houses at a time is not required to comply with the Fair Housing Act if he/she sells one of the homes without the services of a real estate agent or broker
(24 C.F.R. Section 100.10 (b))
The Office of Fair Housing and Equal Opportunity (FHEO) is the office within HUD that handles matters related to fair lending, and this office is run by the Assistant Secretary.  If an “aggrieved person” files a complaint alleging violations of the Fair Housing Act, the Assistant Secretary will initiate an investigation to:
  • Obtain information related to the alleged discriminatory housing practices
  • Document policies or practices that may relate to the alleged discrimination
  • Develop factual data needed to determine whether reasonable cause exists to believe that a discriminatory housing practice has occurred or is about to occur
(24 C.F.R. Section 103.200 (a)(1-3)) 
Testing is one of the most important tools that HUD has when seeking to determine if discriminatory practices exist. As discussed in the review of ECOA, testing involves sending individuals into the market who pose as consumers shopping for a home or a mortgage in order to “test” real estate and mortgage professionals for violations of fair housing and fair lending laws.  Testing has been challenged in federal courts on the grounds that it constitutes entrapment.  Courts have upheld the use of testers, reasoning that it would be very difficult to prove discrimination in housing without using this tool for information gathering. [1]
 



[1] FDIC. “A Guide to Fair Lending.” 16 June 1996, Page 23. http://www.fdic.gov/regulations/resources/side/side.pdf
regulations require the completion of an investigation within 100 days of the filing of a complaint “unless it is impracticable to do so…” (24 C.F.R. Section 103.225).  When the investigation is complete, the Assistant Secretary must prepare a “final investigative report” which will be available to the parties involved in the complaint (24 C.F.R. Section 103.230).
After completion of the investigation, the Assistant Secretary will either determine that “…no reasonable cause exists to believe that a discriminatory housing practice has occurred or is about to occur…” or that “…based on the totality of circumstances known at the time of the decision…reasonable cause may exist to believe that a discriminatory housing practice has occurred or is about to occur…” (24 C.F.R. Section 103.400 (a)). 
Assistant Secretary does not find a reasonable basis to believe that violations of the law have occurred or may occur, he/she must:
  • Issue a short written statement of the facts on which the determination is based
  • Dismiss the complaint
  • Notify the parties to the complaint of the dismissal
(24 C.F.R. Section 103.400)
If the Assistant Secretary finds reasonable cause to believe that violations have occurred or may occur, and the General Counsel of HUD concurs with this finding, the Assistant Secretary must:
  • Issue a “charge” based on the final investigative report that must consist of “…a short and plain statement of the facts upon which the Assistant Secretary has found reasonable cause to believe that a discriminatory housing practice has occurred or is about to occur…” and
  • Obtain a time and place for a hearing before a HUD administrative law judge and serve the charge and notice of the hearing to the parties
(24 C.F.R. Section 103.405)
 
Like ECOA, the Fair Housing Act includes provisions that specify when HUD must refer a case to the Attorney General at the Department of Justice.  Referrals to the DOJ are required if HUD’s General Counsel “…has reason to believe that a basis exists for the commencement of proceedings against the respondent…” for:
  • Pattern of cases, or
  • The enforcement of subpoenas
(24 C.F.R. Section 103.500)
 
Aggrieved Person:  A person that “Claims to have been injured by a discriminatory housing practice, or believes that such person will be injured by a discriminatory housing practice that is about to occur” (24 C.F.R. Sections 100.20 and 103.9). 
Note that “person” is broadly defined in the regulations to include both individuals and entities such as corporations, partnerships, associations, labor organizations, legal representatives, mutual companies, joint-stock companies, trustees, receivers, and fiduciaries.                                                                                                                         
Complainant:  Any person including the FHEO’s Assistant Secretary, who files a complaint for alleged violations of the Fair Housing Act (24 C.F.R. Section 103.9).
This is the term for any person that files a complaint for violations of the Fair Housing Act.

Respondent

Consumer

Complainant

Conciliant
Respondent:  The person accused of discriminatory housing practices (24 C.F.R. Section 103.9).
Conciliation:  An attempted resolution of any issues raised by a complaint or issues discovered during the investigation of a complaint.  A “conciliation agreement” is a written agreement that outlines the issues to be resolved (24 C.F.R. Section 103.9).
Discriminatory Housing Practice:  An act that violates the prohibitions against:
  • Discrimination in the sale or rental of housing
  • Discrimination in residential real estate-related transactions, which includes making home loans
  • Discrimination in providing real estate brokerage services
  • Use of interference, intimidation or coercion against a person who has exercised his/her/its rights granted or protected under the Fair Housing Act
(24  C.F.R. Sections 100.20 and 103.9)
Dwelling:  Any building or structure or any portion of a building or structure that is “…occupied or intended for occupancy as a residence by one or more families, and any vacant land which is offered for sale or lease for the construction or location thereon of any such building, structure, or portion thereof” (24 C.F.R. Sections 100.20 and 103.9).  Note that the term “dwelling” is not defined in a way that limits the scope of the term to a primary residence.
Familial Status:  Included as a protected class to prevent discrimination against families with one or more children under the age of 18, familial status is defined in the regulations.   It means “…one or more individuals (who have not attained the age of 18 years)being domiciled with a parent or another person having legal custody of such individual or individuals…” such as a legal guardian or custodian (24 C.F.R. Section 100.20).  The regulations state that this definition also applies to those who are pregnant or who are in the process of obtaining legal custody of a child.
Residential Real Estate-Related Transactions:  This definition extends the scope of the Fair Housing Act to mortgage lending transactions in both the primary and secondary markets.  The term refers to the:
  • “…making or purchasing of loans or providing other financial assistance… to purchase, construct, improve, repair, or maintain a dwelling,” and to the 
  • “…making or purchasing of loans or providing other financial assistance…” that is secured by residential real estate
The term also applies to “the selling, brokering or appraising of residential real property” (24 C.F.R. Section 100.15).
Under the Fair Housing Act, “familial status” is defined as a protected class in order to:

Ensure that housing discrimination against individuals who are the parents and legal custodians of children does not occur

Ensure that housing discrimination against individuals without children does not occur

Ensure that FHA loans are available to families

Ensure that any family may have access to Section 8 housing
another case, a federal court grappled with whether a bungalow offered for summer residence by a country club met the definition of dwelling. The court reasoned that since “annual members may spend up to five months in their bungalows, they were not mere transients.” Furthermore, there was “no indication in the statutory language that Congress intended to limit coverage of the Act to year-round places of abode....”[1]
Nursing homes are routinely upheld as dwellings under the Fair Housing Act. “To the handicapped elderly persons who would reside there, [the facility] would be their home, very often for the rest of their lives.”
 



[1] U.S. v. Columbus Country Club, 915 F.2d 877 (3rd Cir. 1990).
Additionally, drug and alcohol treatment facilities are considered dwellings by many federal courts. The Third Circuit Court stated that despite the facility’s intent to keep patients just 30 days, patients stayed longer on occasion, noting that a stay in a treatment facility is distinguishable from a typical stay in a hotel or motel. The court examines factors like patients’ lifestyles while in a facility, eating meals together, having a set bedroom, receiving mail, hanging pictures on the wall and accepting visitors into the room. Courts have also used this reasoning to include halfway houses within the definition.[1]
 



[1] Schwarz v. City of Treasure Island, 544 F.3d 1201 (11th Cir. 2008).
Orphanages and homes for children who are wards of the state are also considered dwellings under the Fair Housing Act. In one case, a private, non-sectarian children’s home was established to help needy and dependent children because of unsatisfactory conditions in their families. At the time of the case, the home held a policy against admitting African-American children under the terms of the trust agreement set up by a deceased benefactor. Over the home’s objections as to the applicability of the Act, the court held that the home is “far more than a place of temporary sojourn to the children who live there….The children go to school outside the home….but live at the residential facilities provided by the home.”  The court held that this facility fit squarely within the definition of dwelling.[1]
 



[1] U.S. v. Hughes Memorial Home, 396 F.Supp. 544 (W.D. Va. 1975).
cases have held that a premises was not a dwelling for purposes of protection under the Fair Housing Act. These include the following:
  • A vacant lot, formerly improved by a multi-family dwelling, which was torn down five years ago
  • Hotels, motels and a bed and breakfast
  • Prisons and detention centers
  • Commercial space
 
Under the Fair Housing Act, all of the following are considered a dwelling, except:

A nursing home facility

A detention center

A hospice center

An orphanage
advance a claim for disparate treatment under the Fair Housing Act, the real estate transaction, on its face, must manifest all of the following:
  • The person(s) alleging disparate treatment must belong to a protected class of individuals contemplated by the Fair Housing Act
  • The person(s) alleging disparate treatment qualified for a loan, lease or related transaction
  • Despite his/her qualifications, the plaintiff was denied, and;
  • The defendant continued to make loans or provide housing to other similarly-situated individuals with qualifications like those of the plaintiff
Generally, the plaintiff has the burden of proving disparate treatment to the court. The plaintiff must produce either direct evidence of discrimination or evidence from which a reasonable person could draw an inference of discrimination. Direct evidence is evidence with a direct link between the defendant’s behavior and the challenged housing decision; the drawing of an inference of discrimination is not necessary.[1]
 



[1] Gallagher v. Magner, 619 F.3d 823 (8th Cir. 2010).
impact is more difficult to identify since it occurs when “nondiscriminatory” acts and practices have a disproportionately adverse effect on an individual or group of individuals who are protected under the law. The acts appear to be “nondiscriminatory” but in fact are because of the disparate impact; in other words, they are not “nondiscriminatory.” For example, if a lender only offers mortgages to borrowers who can secure their loans with dwellings that have an appraisal value of $125,000 or more, this policy may disproportionately impact loan applications from minorities.  This policy may be regarded as discriminatory despite the fact that the lender follows it in every mortgage transaction that it conducts, without regard to the personal characteristics of the applicants.
impact is more difficult to identify since it occurs when “nondiscriminatory” acts and practices have a disproportionately adverse effect on an individual or group of individuals who are protected under the law. The acts appear to be “nondiscriminatory” but in fact are because of the disparate impact; in other words, they are not “nondiscriminatory.” For example, if a lender only offers mortgages to borrowers who can secure their loans with dwellings that have an appraisal value of $125,000 or more, this policy may disproportionately impact loan applications from minorities.  This policy may be regarded as discriminatory despite the fact that the lender follows it in every mortgage transaction that it conducts, without regard to the personal characteristics of the applicants.
This is the term for treating one group of consumers differently from others based on personal characteristics.

Disparate treatment

Disparate impact

Redlining

Discrimination

 

are circumstances in which liability cannot arise as a result of the disparate impact of a policy or practice.  If the policy or practice is driven by “business necessity,” and “…there is no less discriminatory alternative, a violation of the Fair Housing Act or the ECOA will not exist.” [1]  It can be very difficult to demonstrate business necessity.

Federal courts have developed a three-step analysis to determine the presence of disparate impact. First, the plaintiff must establish through the introduction of evidence “that the objected-to action[s] result in ... a disparate impact upon protected classes compared to a relevant population.”  Stated another way, the first part of the analysis requires a finding that a facially-neutral policy had the effect of imposing a substantially adverse impact on members of a protected group. There is no requirement that the plaintiff must prove the defendant intended to discriminate.

 





[1]HUD, DOJ, and the Federal Banking Agencies. “Policy Statement on Discrimination in Lending.”  15 Apr. 1994. http://www.fdic.gov/regulations/laws/rules/5000-3860.html

part of the analysis, it is then up to the defendant to prove that its policy or conduct had a “manifest relationship to a legitimate, non-discriminatory policy objective and was necessary to the attainment of that objective.”

If the defendant is able to prove the second part of the analysis, the burden of proof shifts back to the plaintiff to prove “a viable alternative means was available to achieve the legitimate policy objective without discriminatory effects.” 

Ways to meet the first prong of the analysis include evidence of a shortage of housing among minority groups, members of a protected class make up a disproportionate amount of low-income household or homeless populations, increased costs for renters that lead to low-income tenants and other evidence of burdens on minority groups.

part of the analysis, it is then up to the defendant to prove that its policy or conduct had a “manifest relationship to a legitimate, non-discriminatory policy objective and was necessary to the attainment of that objective.”

If the defendant is able to prove the second part of the analysis, the burden of proof shifts back to the plaintiff to prove “a viable alternative means was available to achieve the legitimate policy objective without discriminatory effects.” 

Ways to meet the first prong of the analysis include evidence of a shortage of housing among minority groups, members of a protected class make up a disproportionate amount of low-income household or homeless populations, increased costs for renters that lead to low-income tenants and other evidence of burdens on minority groups.

Which of the following discriminatory lending practices is an illustration of disparate impact?

A loan purchaser only purchases mortgages secured by free-standing homes

A lender refuses to originate mortgage loans for Native Americans

A lender offers unmarried and childless home loan applicants more favorable interest rates than it offers to equally creditworthy applicants who are married and have children

A loan purchaser refuses to purchase mortgages secured by homes in neighborhoods where the residents are predominantly African American
The rules that implement the prohibitions established under the Fair Housing Act are called:

The HUD Fair Housing Rules

The Fair Housing Code

Regulation Z

Regulation B

Fair Housing Act prohibits any person or business engaged in real estate-related transactions from discriminating “…because of race, color, religion, sex, handicap, familial status, or national origin…” (42 U.S.C. Section 3605 (a)).  Discrimination includes offering lending terms or conditions to a member of a protected class that are less favorable than those offered to borrowers who are not in a protected class.  HUD’s rules define “real estate-related transactions” as “…the making or purchasing of loans or providing other financial assistance…” (24 C.F.R. §100.115 (a)). Therefore, the prohibition against discriminatory practices in residential real estate-related transactions clearly applies to mortgage professionals. prohibitions during the home loan application process include:

  • Discriminating on the basis of race, color, religion, sex, handicap, familial status, or national origin
  • Failing or refusing to provide information on the availability of loans and on application requirements and procedures
  • Providing inaccurate information or information that is different from that provided to others because of race, color, religion, sex, handicap, familial status, or national origin

(24 C.F.R. Section 100.120)

Specific prohibitions during the underwriting of a home loan include:

  • Using different policies, practices, or procedures in evaluating the credit worthiness of a loan applicant due to race, color, religion, sex, handicap, familial status, or national origin
  • Determining the type of loan that an applicant may have “…or fixing the amount, interest rate, duration or other terms for a loan…” based on race, color, religion, sex, handicap, familial status, or national origin

(24 C.F.R. Section 100.130 (b)(2))

Specific prohibitions against discrimination in the appraisal of real estate include:

  • Discriminating on the basis of race, color, religion, sex, handicap, familial status, or national origin when appraising residential real property
  • Using an appraisal of residential real property in connection with a lending transaction if the person using it “knows or reasonably should know that the appraisal improperly takes into consideration race, color, religion, sex, handicap, familial status, or national origin

(24 C.F.R. Section 100.135 (d))

Prohibitions Against Discriminatory Servicing Practices

In February 2013, HUD added a provision to its rules that addresses loan servicing.  This new provision in the regulations states that unlawful conduct under the Fair Housing Act includes servicing loans that are secured by real estate in a manner or with the use of terms and conditions “…that discriminate, because of race, color, religion, sex, handicap, familial status, or national origin” (24 C.F.R. §100.130(b)(3)).

Martin is a loan originator with a mortgage broker in Juneau. He is trying to help a Native American family secure a home equity line of credit to make improvements on their home. A staff member in his office orders an appraisal of the home, and when Martin receives it, he believes the appraisal to be too low based on his knowledge of the values in his client’s neighborhood. When he reads the signature on the appraisal, he recognizes the name of a local independent appraiser who often drinks too much and publicly states his dislike of Native Americans. Since the surname of Martin’s client’s is Lightfeather and the home is decorated with Native American art and artifacts, Martin realizes that the appraiser would have known the racial background of the homeowner. Does Martin have any legal obligations under the Fair Housing Act?

The Fair Housing Act does not apply to transactions involving home equity lines of credit and does not, therefore, raise any compliance concerns for Martin

He is prohibited from using the appraisal since he reasonably knows that the appraisal improperly takes race into account

He is only prohibited from using the appraisal if he knows by a preponderance of the evidence that the appraisal has improperly taken race into account

Martin has no obligations since he did not order the appraisal himself
Bear Brothers is an investment firm that creates private-label mortgage-backed securities from residential home loans. Bear Brothers pools and rates the risk of its securities based on loan term, interest rate, loan amount, and the racial and ethnic characteristics of the borrowers whose loans it has purchased. The investment firm’s criteria for pooling and rating its mortgage-backed securities are:

Illegal, since ECOA prohibits investors from imposing different terms and conditions on the pooling, packaging, and marketing of mortgage loans based on characteristics such as race and color

Legal, because criteria for rating mortgage-backed securities are stricter than they were prior to the collapse of the mortgage market and allow investors to consider any relevant information on loans used to create the securities

Illegal, since the Fair Housing Act prohibits investors from imposing different terms and conditions on the pooling, packaging, and marketing of mortgage loans based on characteristics such as race and color

Legal, unless there is evidence that Bear Brothers considered the racial and ethnic characteristics of the borrowers when deciding whether or not to purchase the loans

March 5, 2012 was the effective date for HUD’s final rule on “Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity.”  HUD wrote this rule in response to “…evidence suggesting that lesbian, gay, bisexual, and transgender (LGBT) individuals and families are being arbitrarily excluded from housing opportunities in the private sector.” [1]  Although the rule only applies to HUD-assisted and HUD-insured housing and not to loans originated outside of HUD programs, HUD determined that “It is important not only that HUD ensure that its own programs do not involve discrimination…but that its policies and programs serve as models for equal housing opportunity.” [2]

 





[1] 77 Fed. Reg. at 5662

[2] Ibid.

Gender Identity Part 2
These new rules are important for all mortgage professionals to understand because they directly impact lending practices during the origination of FHA loans.  Since 1965, when the Federal Housing Administration became a part of HUD’s Office of Housing, HUD has been the federal agency that is responsible for writing and enforcing the rules that regulate FHA lending.  In the current lending market, conventional loans are difficult to secure and FHA loans, which have more lenient underwriting requirements, have become very popular. Originally intended as products for low- to middle-income borrowers, FHA loans are currently available to a wide range of borrowers as a result of Congressional acts to raise the FHA loan limits.  For all of these reasons, mortgage lenders, brokers, and originators need to understand these new fair lending rules that apply to FHA loans.

  • Gender Identity:  “Actual or perceived gender-related characteristics”
  • Sexual Orientation: “Homosexuality, heterosexuality, or bisexuality.” The inclusion of heterosexuality in this definition is important since it means that protection from discrimination is available to all individuals.  In its Webinar on the new rules, HUD offers an example of a situation in which a heterosexual individual might face discrimination.  In HUD’s example, a landlord refuses to rent an apartment to a heterosexual male because he has a policy of renting properties only to gay men based on his stereotypical assumption that they are especially neat. 

New HUD rules effective in 2012 added which of the following definitions to HUD regulations?

Gender Identity, Sexual Orientation

Gender Identity, Sexual Orientation, Marital Status

Marital Status, Childbearing, Sexual Orientation

Gender Identity, Childbearing

Although it is not referenced in the title of HUD’s new rule, an additional goal of the rule is to ensure that “…HUD’s rental housing and homeownership programs remain open to all eligible persons regardless of …marital status.” [1]  HUD has not previously defined the term “marital status,” and it responded to comments suggesting a definition of this term by stating:  “…HUD does not find that the focus of this rule calls for a definition of ‘marital status.’” [2]

The new rule seeks to ensure that HUD housing and lending programs are available to all applicants regardless of sexual orientation, gender identity, or marital status by stating that these and other personal characteristics are not a legal consideration for eligibility. 

 





[1] 77 Fed. Reg. at 5662

[2] 77 Fed. Reg. at 5666

on eligibility requirements states:

A determination of eligibility for housing that is assisted by HUD or subject toa mortgage insured by the Federal Housing Administration shall be made in accordance with the eligibility requirements provided for such program by HUD, and such housing shall be made available without regard to actual or perceived sexual orientation, gender identity, or marital status.

(24 C.F.R. §5.105(a)(2)(i))

The new rules also create a prohibition on inquiries about sexual orientation and gender identity when an individual seeks HUD housing or a HUD-insured mortgage loan to purchase a dwelling.   

marital status, it is important to remember that:

  • ECOA permits inquiries about marital status if the transaction involves secured credit, such as a transaction for a mortgage loan
  • Although ECOA permits inquiries regarding marital status in mortgage transactions, ECOA prohibits creditors from evaluating married and unmarried applicants differently, and when  evaluating joint applicants, creditors are prohibited from treating them differently “…based on the existence, absence, or likelihood of a marital relationship between the parties

(12 C.F.R. Section 1002.6 (b)(8))

With regard to inquiries about sexual orientation and gender in lending transactions that do not involve FHA loans, the Fair Housing Act has established sex as a protected class, and the protection of this class arguably extends to individuals that manifest any type of sexual orientation or identity.

 

is a loan originator for a small mortgage company that serves an urban neighborhood in Boston. This neighborhood is largely populated by gay men. When a married man and woman enter the office to ask about financing to purchase a condo that they like in the neighborhood, David quotes rates that are higher than those that he offers to his usual clients. David’s actions are:

Not discriminatory since protected class members like David have the right to create neighborhoods where they will not experience discrimination

Discriminatory since the new LGBT rule prohibits discrimination on the basis of sexual orientation

Not discriminatory since he is a member of a protected class and is not subject to the Fair Housing Act or its regulations

Discriminatory but not a violation of the Fair Housing Act since it does not protect heterosexuals

1994, the federal courts took a look at a phenomenon known as “racial steering,” which is a practice by which real estate brokers and agents preserve and encourage patterns of racial segregation in available housing by steering members of racial and ethnic groups to buildings occupied primarily by members of those racial and ethnic groups and away from buildings and neighborhoods inhabited primarily by members of other races or groups. In this case, a non-profit housing agency sent four sets of “testers” to a real estate brokerage firm known for discriminatory practices.

This is a practice by which real estate agents and brokers encourage and preserve patterns of segregation in housing by encouraging members of the same racial and ethnic groups to inhabit buildings and neighborhoods primarily occupied by people of the same group.

Racial steering

Redlining

Reverse redlining

Grouping

Harassment is considered a form of discrimination under the Fair Housing Act and is actionable provided a court can find a causal connection between the harassment and a resulting housing change or decision. For instance, one case, decided in 1997, presented a factual scenario in which a landlord agreed to a $100 per month reduction in rent in exchange for the chance to “fool around” with the tenant. The tenant refused his request, and the landlord became increasingly persistent, causing her to move out of the apartment. The tenant filed a complaint against the landlord, and the court awarded her damages for emotional distress. The court noted that in harassment cases, the more inherently degrading or humiliating the defendant's action is, the more reasonable it is to infer that a person would suffer humiliation or distress from that action.[1]

 





[1] Krueger v. Cuomo, 115 F.3d 487 (7th Cir. 1997)

Which of the following statements is incorrect regarding conciliation agreements?

Conciliation agreements must be approved and signed by the HUD's Assistant Secretary

Conciliation agreements are punitive in nature

Conciliation agreements must be in writing

Conciliation agreements seek remedial solutions

  

  • parties must agree to the relief extended to the aggrieved person, and this relief may include:
    • Monetary relief, including damages for humiliation and embarrassment, and attorney’s fees
    • Equitable relief such as access to the dwelling at issue or to a comparable dwelling (in the context of mortgage lending, the equitable relief could include the offer of a loan with rates and terms that are comparable to the one that was unfairly denied)
    • Injunctive relief to immediately terminate any discriminatory practices that are taking place

(24 C.F.R. Section 103.315 (a))

  • All aggrieved parties are “…satisfied with the relief provided to protect their interests
  • provisions of the conciliation agreement will “adequately vindicate the public interest.” Examples of provisions in a conciliation agreement that will “adequately vindicate” the public interest include those that:
    • Eliminate discriminatory housing practices
    • Prevent future discriminatory practices
    • Propose remedial activities to overcome discriminatory practices
    • Impose reporting requirements
    • Require monitoring and enforcement activities

(24 C.F.R. Section 103.320)

If the parties to a complaint do not execute a conciliation that is approved by HUD’s Assistant Secretary, then HUD’s General Counsel may issue a charge. The issuance of a charge is the first step in an adjudicative process that culminates with a hearing before one of HUD’s administrative judges (24 C.F.R. Section 103.310 (2)).

The regulations also give HUD authority to “…terminate its efforts to conciliate the complaint…” and may opt to do so when:

  • The respondent fails or refuses to confer with HUD
  • Either the aggrieved person or the respondent fails to make a good faith effort to resolve the dispute
  • The aggrieved party has filed an action in court
  • HUD finds that a voluntary agreement is unlikely

(24 C.F.R. Section 103.325)


HUD may review compliance with conciliation agreements. Violations of conciliation agreements are very serious matters that can lead to the referral of the matter to the Department of Justice. The regulations mandate that “Whenever HUD has reasonable cause to believe that a respondent has breached a conciliation agreement…” it must refer the case to the DOJ with a recommendation for resolution of the matter through a civil action in federal court (24 C.F.R. Section 103.335).

HUD provides online access to the conciliation agreements that it facilitates and approves.

The regulations ensure public access to this information, stating that “Conciliation agreements shall be made public, unless the aggrieved person and respondent request nondisclosure and the Assistant Secretary determines that disclosure is not required…” (24 C.F.R. Section 103.330 (b)).

Despite the fact that conciliation agreements may be disclosed to the public, HUD regulations protect information disclosed during conciliation. Without an affected party’s written consent, certain information will not be:

  • Made public
  • Used as evidence in later administrative hearings
  • Used in civil actions

(24 C.F.R. Section 103.330 (a))

  • Meeting the conditions required to earn HUD’s approval of the agreement by providing:
    • Monetary relief for the aggrieved party and others “similarly situated”
    • Satisfactory resolution for all aggrieved parties by establishing a compensation fund that could provide monetary relief for losses incurred
    • Adequate vindication of the public interest by requiring employee training, monitoring, and reporting to eliminate future discriminatory practices
  • The conciliation agreement allowed HUD to achieve the goals that it must "attempt to achieve" through the conciliation process by:
    • Achieving an agreement with the lender/respondent which ensured that alleged violation of the rights of the aggrieved party were addressed
    • Achieving an agreement with the lender/respondent which could eliminate future discriminatory practices with requirements for training, monitoring, reporting, and a re-evaluation of its underwriting guidelines for loan applicants who are pregnant or on maternity leave

These lending guidelines reflect those of Fannie Mae and Freddie Mac, and HUD is currently working with these agencies to determine if their guidelines comply with fair housing laws. While lenders await new or revised guidelines, HUD’s own guidelines for its FHA-approved lenders may offer some guidance. HUD does not allow FHA–approved lenders to make inquiries about an applicant’s intentions regarding the possibility of future maternity leave. However, if an applicant is on maternity leave or short-term disability leave when a loan closes, FHA-approved lenders must document:

  • The borrower’s intent to return to work
  • The borrower’s right to return to work
  • The ability of the borrower to qualify for the loan, while taking into account any reduction in income due to a maternity leave [1]





[1] Goodloe, Shantae. HUD No. 11-108. “HUD Acts Against Pregnancy Discrimination in Home Mortgages.” HUD.GOV. 1 June 2011. http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-108

 

Mortgage Bank (MMB) and HUD have entered a conciliation agreement. The agreement arose from complaints that HUD received from numerous women who alleged that MMB either denied their loan applications or refused to process their loan applications due to the fact that they were on maternity leave from full-time employment. As a part of the conciliation agreement, MMB has allowed HUD to monitor its lending practices. If HUD’s monitoring shows that MMB is still denying or delaying the processing of the loan applications of women who are on maternity leave or who are planning a maternity leave, HUD would be required, by provisions in its own regulations, to:

File a civil action in the federal court in the jurisdiction where the discriminatory actions are taking place

Refer the matter to the CFPB with a recommendation that the Bureau pursue action in federal court

File a charge and initiate an action before one of HUD’s administrative law judges

Refer the matter to the Department of Justice with a recommendation to pursue action in court

Fair Housing Act includes provisions for both civil and criminal penalties. The purpose of the law’s civil penalty provisions is “…to vindicate public interest…” (42 U.S.C. Section 3612(g)(3)). These penalties may be imposed by an administration law judge after evidence submitted in a hearing allows him/her to find that “…a respondent has engaged or is about to engage in a discriminatory housing practice…” (42 U.S.C. Section 3612(g)(3)). Penalty amounts depend on a respondent’s history of noncompliance. Penalties are:

  • An amount not to exceed $16,000 if the respondent has not committed prior discriminatory practices
  • An amount not to exceed $37,500 if the respondent “has been adjudged” to have committed one other discriminatory housing practice during the five-year period that preceded the filing of the charge
  • An amount not to exceed $65,000 if the respondent “has been adjudged” to have committed two or more discriminatory housing practices during the seven-year period that preceded the filing of the charge

(24 C.F.R. Section 180.671(a))

If it is determined that a respondent has committed four discriminatory housing practices in the past two years, what is the maximum civil penalty the respondent will be forced to pay?

$37,500

$16,000

$37,000

$65,000

Has been adjudged” means that the respondent’s violations of the law were the subject of an administrative hearing or a proceeding in court where he/she/it was found to have violated the law.

It is important to note that the total amount of penalties can exceed those outlined above, because “…a separate civil penalty may be assessed against the respondent for each separate and distinct discriminatory housing practice” (24 C.F.R. Section 180.671(e)). It should also be noted that if the discriminatory acts that are the subject of a new charge were committed by the same individual who was previously found in a hearing to have committed discriminatory acts, then the administrative law judge may impose penalties without regard to the time period within which the discriminatory acts occurred (42 U.S.C. Section 3612(g)(3)(A-C)).

Factors that an administrative law judge can consider in assessing penalties include:

  • Previous adjudications for unlawful discriminatory acts
  • Financial resources
  • The nature and circumstances of the violation
  • Degree of culpability
  • Goal of deterrence

(24 C.F.R. Section 180.671 (c))

The Fair Housing Act imposes stiff criminal penalties for using force or threat of force to willfully intimidate or interfere with an individual’s purchasing, renting, financing or occupying of a dwelling on the basis of race, color, religion, sex, handicap, familial status, or national origin. Penalties may include fines of up to $100,000 or one year of imprisonment, or both a fine and imprisonment (42 U.S.C. Section 3611 (c)).

The law also imposes criminal penalties of $100,000 or one year of imprisonment or both for willful failures to attend and testify at hearings related to Fair Housing Act violations. This penalty provision also applies to those who:

  • Make false statements in a hearing
  • Willfully neglect or fail to make correct entries in reports, account, and records
  • Mutilate or falsify documentary evidence

(42 U.S.C. Section 3611 (c))

Metropolitan Mortgage was the respondent in a hearing before an administrative law judge in 2012 for discriminatory lending practices, and a judgment was entered against it. In 2014, Metropolitan Mortgage was once again named as a respondent in a charge for violations of the Fair Housing Act. If the administrative law judge enters a judgment against Metropolitan Mortgage, the penalty is likely to be:

$37,500

$25,000

$65,000

$16,000

its final version of the rule, HUD states that its new rule “…formalizes the longstanding interpretation of the Fair Housing Act to include discriminatory effects liability and establishes a uniform standard of liability for facially neutral housing practices that have a discriminatory effect.”[1] Under this standard, a complainant, who is referred to in the rules as the “charging party,” has the burden of proving that the practice that he/she is challenging has a discriminatory effect. As HUD states in the Preamble to the rule, “Whether a particular practice results in a discriminatory effect is a fact-specific inquiry.”[2] If a charging party meets this burden, the respondent must prove that the practice is necessary to one of its nondiscriminatory interests. If the respondent makes such a showing, then the complainant must show that the challenged practice may be replaced by one with a less discriminatory effect.

Ann Marie applied for a home loan at the same time that one of her co-workers also applied for a loan. Both hold similar jobs with similar salaries, have similar educational backgrounds, and are seeking to purchase similar residences with financing from the same lender. Ann Marie is Latino, and she suspected discrimination when her loan offer was more expensive than the offer that the lender extended to her Caucasian co-worker. Ann Marie reported her lending transaction to HUD, and it launched an investigation. HUD may launch an investigation because these facts show evidence of:

A violation of the new HUD fair housing regulations

Overt discrimination

Disparate impact

Disparate treatment

 

 





[1] “Implementation of the Fair Housing Act’s Discriminatory Effects Standard.” 78 Fed. Reg. 11460-11482. 15 Feb. 2013, Page11479

[2] Id. at 11468

Penalty amounts under the Fair Housing Act depend on a respondent’s history of noncompliance.
True
False
2. Harassment is not considered a form of discrimination under the Fair Housing Act.
True
False
3. The Fair Housing Act prohibits any person or business engaged in real estate-related transactions from discriminating because of race, color, religion, sex, handicap, familial status, or national origin.
False
True
4. The Fair Housing Act was actually the first law that Congress enacted to address redlining and other issues related to fair housing and nondiscriminatory mortgage lending practices.
False
True
5. When HUD receives fair housing complaints, the parties to the dispute, known as the complainant and the respondent, will have an opportunity to enter a conciliation agreement.
v
False
True
6. Disparate treatment involves treating one group of consumers differently from others, based on whether or not they are qualified for a loan.
True
False
7. The process of securitization includes collecting loans with similar credit risks, loan terms, and other comparable features into a “pool” and selling an interest in this pool to investors as mortgage-backed securities.
False
True
8. The protected classes, or those individuals or groups of individuals who will receive protection under the Fair Housing Act, are identical to those established under ECOA.
False
True
9. The Fair Housing Act provisions that prohibit discrimination based on familial status also apply to qualified senior housing.
False
True
10. Even though the Fair Housing Act does not expressly include sexual orientation or gender identity as protected classes, discrimination against LGBT individuals is arguably discrimination based on sex and in violation of the existing law.
False
True
1. A class that the Fair Housing Act expressly names as a protected class and that ECOA does not expressly name as a protected class is:
Religion
Color
Handicap
Sex
2. HUD’s new fair housing policy prohibits an assessment of eligibility for an FHA-insured loan that is based on a consideration of:
Race
National origin
Handicap
Marital status
3. HUD has a new policy that seeks to ensure the availability of HUD lending and housing programs without consideration of particular personal characteristics. All but which of the following is a personal characteristic that is protected under the new policy?
Marital status
Gender identity
Sexual orientation
Political party affiliation
4. The Fair Housing Act provisions that prohibit discrimination based on familial status do not apply to:
Mortgage brokers
Qualified senior housing
HUD housing
Lenders
5. A conciliation agreement cannot be finalized without the signature of:
The CFPB Director
A judge in a federal court in the district where the discrimination allegedly occurred
An administrative law judge
HUD’s Assistant Secretary
For purposes of the Fair Credit Reporting Act, the ____________ has primary oversight responsibility for consumer reporting agencies.

Consumer Financial Protection Bureau

Office of the Comptroller of the Currency

Federal Deposit Insurance Corporation

Office of Thrift Supervision
Which of the following is NOT regulated by the Fair Credit Reporting Act?

An insurance company that requests a list of consumers from a consumer reporting agency

A consumer who submits an identity theft report

A hospital that supplies information to a consumer reporting agency

An employer that requests information from a consumer reporting agency
Any agency or U.S. department that obtains or discloses a consumer report in violation of the Fair Credit Reporting Act is liable to the consumer that is the subject of the report in an amount equal to the sum of all of the following, except:

Punitive damages for a willful violation

$100

Actual damages sustained

Three times the attorneys’ fees incurred
an employer refuses to promote an employee because of information contained in a consumer report, what does the Fair Credit Reporting Act require of the employer?

That it send notice of the decision not to promote to the consumer reporting agency

Nothing is required because FCRA does not apply to decisions to promote

That it give the employee a copy of the report

That it provide the employee with reasons for the decision not to hire him or her
Consumer reporting agencies are not allowed to give an entity asking for a report a record of inquiries in connection with a credit or insurance transaction not initiated by a consumer. However, consumer reporting agencies are allowed, upon request, to disclose to a consumer a record of all inquiries received by the reporting agency within the one-year period prior to a consumer’s request that identified the consumer in connection with a credit or insurance transaction not initiated by the consumer (15 U.S.C. §1681g).
report provided in a credit or insurance transaction may contain the following pieces of information, except:

An identifying number used to identify the consumer

The consumer’s name

The consumer’s address

The consumer’s Social Security number
FCRA gives consumers the right to prevent a consumer report from being provided in connection with a credit or insurance transaction that they did not initiate (15 U.S.C. §1681b(e)). To get on the do-not-send list, a consumer has two options. First, the consumer can use the notification system that the consumer reporting agency uses (FCRA requires that all consumer reporting agencies establish a notification system, which could be as simple as a toll-free telephone number).
provisions of this subsection alter, affect, or supersede the applicability of any other provisions of federal law relating to medical confidentiality.
Which of the following accurately states the rule for sharing information about medical treatment histories?

Only consumer consent is required in an insurance situation, but more is required for an employment or credit transaction

The information cannot be shared even where the consumer consents

Only consumer consent is required in a credit situation, but more is required for an insurance or employment situation

Only consumer consent is required in an employment situation, but more is required for an insurance or credit transaction

  • Arrest records that are more than seven years old, unless the statute of limitations has not expired, at which point the arrest may be reported until the statute of limitations expires
  • Tax liens that are more than seven years old
  • Accounts placed for collection (or charged off) that are more than seven years old
  • Any other adverse information that is more than seven years old, other than conviction of a crime (conviction of a crime can always be reported, no matter how old);
  • The name, address, and telephone number of any medical information provider unless either:
    • That information does not convey information on the nature of the services (the name of a psychiatric center, for example, would not qualify because it conveys information that the consumer has mental health problems), or
    • The report is being provided to an insurance company for purposes related to an insurance matter not involving property and casualty insurance

(15 U.S.C. §1681c(a))

FCRA also contains a list of situations in which the rules about what can be contained in a consumer report do not apply. The rules do not apply in the following situations:

  • A credit transaction involving, or which may reasonably be expected to involve, a principal amount of at least $150,000
  • The underwriting of life insurance involving, or which may reasonably be expected to involve, a face amount of at least $150,000
  • An employment situation in which the employee is expected to receive an annual salary of at least $75,000

(15 U.S.C. §1681c(b))

The Fair Credit Reporting Act provides that a consumer report may not contain any of the following, except?

A tax lien that is eight years old

A bankruptcy case that is eight years old

An arrest record that is eight years old

A civil lawsuit that is eight years old

The 90-day fraud alert is referred to as a one-call fraud alert. FCRA also permits an extended alert, which is triggered when a consumer submits an identity theft report to a consumer reporting agency. Once the agency receives an identity theft report, the agency must take the following steps:

  • For seven years, include a fraud alert in the file, unless the consumer requests that the alert be removed before the end of the seven years
  • For five years, exclude the consumer from any list of consumers provided to a third party offering credit or insurance as part of a transaction not initiated by the consumer, unless the consumer requests that the alert be removed before the end of the five years
Identity Theft Prevention
  • Notify other consumer reporting agencies of the fraud alert
  • Tell the consumer that he or she is entitled to two free copies of the file during the next 12 months
  • If the consumer requests a free copy, provide the consumer with all disclosures required to be made (see Consumer Disclosures below) no later than three business days after the request
a fraud alert is placed in a consumer’s file as a result of a phone call, what step can be taken to extend the time the fraud alert is in effect?

Establishing to the consumer reporting agency’s satisfaction that at least one transaction in the file was the result of identity theft

Making a second phone call to at least two consumer reporting agencies

Filing an identity theft report with a consumer reporting agency

Reporting the theft to the FBI
Consumer reporting agencies are also required to block the reporting of any information in a file that has been alleged to result from identity theft (15 U.S.C. §1681c-2). The block must occur no later than four business days after the agency has received the following:
  • Proof of the consumer’s identity
  • A copy of the identity theft report
  • The identification of such information by the consumer
  • The consumer’s statement that the information is not related to any transaction in which he or she was involved

 

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