Open a Bank Account
Open a bank account and use it responsibly. This is the first step to establish a financial history.
Secured Credit Card
Apply for a credit card. Shop around and only apply for a card if you can meet the lender requirements. Responsible use will help build a good credit history.
Get a Co-Signer
A good way to establish credit is to piggy-back onto someone who already has a good credit history established and is willing to co-sign, but be aware that any default of credit on your part affects the credit of the co-signer.
Gas Credit Cards
Since some gasoline credit cards are not revolving they are sometimes easier to obtain than regular credit cards. Similarly department stores offer revolving credit for a specific purchase and this is sometimes easier to obtain. It is also a great way to establish credit.
Understand how to make it higher free- ask me.
Committed to Seeing You Home.
Eagle Home Mortgage
8105 Irvine Center Drive Suite #500
Irvine CA 92618
NMLS #849059 CA #813I609 Universal American Mortgage Company of California, dba Eagle Home Mortgage of California. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act. RMLA #4130383, NMLS #252392. Certain restrictions apply. This is not a commitment to lend. Applicants must qualify.
Caroline Gerardo | 8105 Irvine Center Drive #500, Irvine, CA 92618
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]
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]
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]
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).
Top of Form
You have reached
the maximum time allowed for this page of the module.
If you wish to continue reading this section (page) press
“Continue”. Please note that you will not earn any additional
time while you remain on this page.
To continue to the following page, please click “Next”.
As a reminder,
this is a timed module. You are required to meet the minimum amount of
time required for this module before you can proceed to the Quiz. The
minimum time required for this module is listed in the module title as
well as in the Alert received each time the module is initially
accessed.
In order to meet
the S.A.F.E. mandated timing requirements, you must actively
review each page within the module and complete all
modular activities. Students who meet the timing requirements without
having actively viewed each page, or completed each activity within the
content, will not be permitted to complete the module.
Once you have
viewed the module in its entirety, and met all of the module timing and
activity requirements, a “Complete Lesson” button will appear on the
final page. Please click "Complete Lesson" to move onto your
Quiz.
Bottom of Form
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]
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.
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 “…themaking 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 realestate 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]
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.
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]
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 toexceed $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
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