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FAIR HOUSING ACT
A 1968 civil rights law, the Fair Housing Act prohibits discrimination
in the sale or rental of a dwelling on the basis of race, color, religion,
handicap, sex, familial status, or national origin. Under the Fair Housing
Act, it is unlawful for any person who engages in the business of making
or purchasing residential real estate loans, or in the selling, brokering,
or appraising of residential real property, to discriminate on the basis
of the factors listed above.
In particular Section 804 and 805 of the Act and Sections 100.120, 100.130,
and 100.135 of the HUD regulations:
* Prohibit discrimination in lending and appraisal and financial assistance
and acts that "make otherwise unavailable" a dwelling in "real
estate related transactions."
* Prohibit discrimination (against persons or geographic areas) on the
basis of race, color, religion, sex, etc.
* Establish HUD as the lead federal agency in charge of fair housing enforcement
through a private civil action in federal court or an administrative hearing
before an administrative law judge.
HOME MORTGAGE DISCLOSURE ACT (Reg. C)
Enacted by Congress in 1975 and amended during the period from 1988 to
1991, the Home Mortgage Disclosure Act (HMDA) is intended to provide the
public with loan data that can be used to determine whether financial
institutions are serving the housing credit needs of their communities,
to assist public officials in distributing public sector investments,
and to assist in identifying possible discriminatory lending patterns.
Financial institutions are required by Regulation C, which implements
HMDA, to report data regarding loan applications, as well as information
concerning their loan originations and purchases. HMDA requires most lenders
to report the race, sex, and income of mortgage applicants and borrowers.
EQUAL CREDIT OPPORTUNITY ACT (Reg. B)
The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to promote
the availability of credit to all creditworthy applicants without regard
to race, color, religion, national origin, sex, marital status, age, receipt
of public assistance funds, or the exercise of any right under the Consumer
Credit Protection Act. Regulation B, issued under the ECOA, prohibits
creditor practices that discriminate on the basis of any of these factors.
Specifically, the ECOA:
* Prohibits discrimination in the lending process and in marketing.
* Requires the provision of a reason for a loan denial (adverse action
notice).
* Requires regulatory agencies to report suspected fair housing violations
to HUD or the U.S. Department of Justice (DOJ).
* Requires mortgage lenders to notify applicants of their right to obtain
a copy of the real estate appraisal report, if the applicant paid for
this appraisal in the loan process.
The federal agencies that regulate financial institutions have authority
to enforce Regulation B administratively. Civil suits for unlawful credit
discrimination may be brought within two years of the date of the occurrence
of the alleged violation. Damages include actual damages and punitive
damages of up to $10,000 in individual actions. Punitive damages are limited
to the lesser of $500,000 or 1 percent of the creditor's net worth in
class actions.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act (CRA) was enacted in 1977 to require each
federal financial supervisory agency to encourage financial institutions
(except credit unions) to help meet the credit needs of their delineated
communities, including low-and moderate-income neighborhoods within those
communities, consistent with safe and sound banking practices. Each of
the four supervisory agencies (the Board of Governors of the Federal Reserve
System, the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, and the Office of Thrift Supervision) has issued regulations
to implement the CRA.
The CRA regulations requires each financial institution to:
* Prepare a CRA Statement that defines the local community served (in
words and with a map).
* List the types of loan it is prepared to make to its community.
* Maintain a PUBLIC CRA FILE with the CRA STATEMENTS and ANY PUBLIC COMMENTS
for the PAST TWO YEARS.
* Post a Public Notice that notifies the public of the CRA Statement,
the Public File, and that lists the names and addresses of the regulatory
agencies that regulate the institution for the CRA.
MORTGAGE LENDING DISCRIMINATION - DISPARATE
TREATMENT AND DISPARATE IMPACT
Disparate Treatment
Disparate treatment occurs when a lender treats a credit applicant or
borrower, at any time, differently based on one of the prohibited bases
during the lending process. For example, requiring one applicant to make
an appointment to discuss a loan application while allowing another applicant
to "drop in anytime" would be considered disparate treatment.
Steering some applicants into higher priced loan products is another example
of disparate treatment, as is using income averaging to improve debt-to-income
ratios for only some applicants. Finally, requiring a change in loan terms
if the marital status of a borrower changes during the life of the loan
and there is no evidence of unwillingness or inability to pay, would also
be disparate treatment.
Disparate Impact
Disparate impact occurs when a lender applies a policy or practice equally
to all credit applicants, but the policy or practice has a disproportionately
adverse impact on applicants from a protected group. For example, an institution
has established a lending policy that prohibits lenders from making mortgage
loans below a certain dollar threshold. While this policy may have been
in effect for some time, and may be applied equally to all applicants,
such a dollar limitation may result in discrimination against a protected
group that may be more likely to purchase homes priced below this threshold,
preventing applicants from this group from obtaining home mortgage loans.
Another example of disparate impact is the practice of using gross income
in underwriting decisions but failing to "gross up" non-taxable
income. Such a practice could have a disparate impact on the elderly and
individuals with disabilities.
MORTGAGE LENDING DISCRIMINATION - TYPES OF ACTIVITIES
* ACCESS TO MORTGAGE LENDING INSTITUTIONS
* LOAN PRODUCTS
* INTEREST RATES & POINTS
* COSTS
* UNDERWRITING
* SERVICE
* DISCOURAGEMENT
FOR ADDITIONAL INFORMATION CONTACT:
FAIR HOUSING ADVOCATES ASSOCIATION
Phone: (330) 253-2450
Fax: (330) 996-4264
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