On August 31, the New York Department of Financial Services (DFS) issued an industry letter to all supervised mortgage lending institutions and their affiliates on preventing sexual orientation discrimination in mortgage lending. New York’s Fair Lending Law prohibits discrimination in, among other things, the granting, withholding, extending, or renewing, or in the fixing of the rates, terms, or conditions, of any form of credit on the basis of sexual orientation.
After analyzing mortgage loan applications and terms from four non-depository lenders and one bank from 2016-2018, DFS found notable disparities in approvals and denials and terms of credit between same-sex and opposite-sex pairs in mortgage lending. While DFS could not determine whether these disparities resulted from discrimination, it notes that the findings raise sufficient concern of possible discrimination based on sexual orientation. As a result, DFS issued its industry letter.
The industry letter recommends all mortgage lenders take the following actions to reduce risks of discrimination based on sexual orientation:
- Vest the board of directors and senior management with responsibility for developing a fair lending plan and ensuring that the lender’s practices comply with the plan.
- Monitor implementation of the fair lending plan and adherence to the plan’s policies and procedures, continually addressing application and underwriting processes, as well as pricing policies.
- Implement a training program for new hires, current employees, and management at least semi-annually that provides lending personnel updates on fair lending issues and requires participants to certify an understanding of and a commitment to uphold the principles of fair lending laws and the policies and procedures contained in the fair lending plan.
- Ensure automatic and timely review by a higher-level supervisor of all rejected or withdrawn applications for loans from same-sex pairs who indicated that they would live together in the mortgaged property.
- Extend, in writing, the principles of the fair lending plan to the lender’s refinancing and collection practices.
- Periodically review and update the fair lending plan and compliance program, including periodic review by senior management, to ensure that they remain current.
DFS also recommends that all mortgage lenders take the following compliance actions:
- Update policies and procedures to address sexual orientation anti-discrimination efforts.
- Utilize rate sheets and exception logs to document applications from same-sex pairs who indicated that they would live together in the mortgaged property that are either (a) denied for any reason other than a failure to meet the institution’s written underwriting standards, or (b) granted, but with credit terms less favorable than the applicable rate sheets would otherwise determine.
- Monitor loan portfolio for compliance with fair lending policies and procedures, which may include identifying those loan applications from, and loans made to, same-sex pairs who indicated that they would live together in the mortgaged property and distinguishing such applications and loans from those applications from, and loans made to, same-sex pairs who do not consist of two individuals who indicated that they would live together in the mortgaged property.
- Regularly assess marketing and advertising strategies to ensure compliance with the principles and provisions of fair lending laws and the fair lending plan.
- Investigate and attempt to identify the causes of any unexplained disparities in underwriting and pricing between same-sex and opposite-sex pairs who indicated that they would live together in the mortgaged property.
The industry letter is another example of regulators — both state and federal — emphasizing fair lending, and more broadly the concept of equity, as a priority in their regulatory plans.