On October 15, the Consumer Financial Protection Bureau (CFPB or Bureau) and the Department of Justice (DOJ) announced that they reached a settlement with Fairway Independent Mortgage Corporation (Fairway). This settlement addresses allegations of redlining in majority-Black neighborhoods in Birmingham, Alabama. Fairway is headquartered in Madison, WI, but operates under the trade name MortgageBanc in the Birmingham area. Fairway, the third-largest mortgage lender in the United States, is now the second non-bank mortgage company to enter into a redlining settlement.

The CFPB and DOJ’s complaint against Fairway alleged violations of the Equal Credit Opportunity Act, the Consumer Financial Protection Act, and the Fair Housing Act. Specifically, the complaint contained detailed allegations related to:

• Retail Loan Offices: Fairway concentrated all its retail loan offices and loan production desks located in real estate offices in majority-white areas in Birmingham, failing to establish any offices in majority-Black neighborhoods.
• Marketing Practices: From 2018 to 2020, less than 3% of Fairway’s direct mail advertising was directed to consumers in majority-Black areas, despite these areas comprising 33% of the Birmingham Metropolitan Statistical Area. Fairway also relied on referrals from real estate professionals and others to generate applications, and the vast majority of Fairway’s referral sources and referred consumers were located in majority-white areas.
• Loan Applications: Only 3.7% of Fairway’s applications from 2018 through 2022 were for properties in majority-Black areas, compared to 12.2% for its peer lenders. This disparity was even more pronounced in neighborhoods with 80% or more Black residents, where Fairway made loans at less than an eighth of the rate of its peers.

The complaint also noted that Fairway’s own data showed that it was not meeting the credit needs of majority-Black neighborhoods in the Birmingham area, but, before October 2022, it took no steps to address redlining risk other than telling loan officers not to discriminate.

As part of the consent order, the CFPB imposed a $1.9 million civil money penalty on Fairway, which will be paid into the CFPB’s victims relief fund. This is noteworthy as the Bureau has a policy and practice of issuing civil money penalties in all enforcement actions, including redlining settlements, even though the DOJ typically does not do so in redlining consent orders. Additionally, Fairway is required to provide $7 million for a loan subsidy program aimed at offering affordable home purchase, refinance, and home improvement loans in majority-Black neighborhoods in Birmingham. Fairway must also open or acquire a new loan production office or full-service retail office in a majority-Black neighborhood in the Birmingham metropolitan area, and pay at least $500,000 for advertising and outreach, at least $250,000 on consumer financial education, and at least $250,000 on partnerships with one or more community-based or governmental organizations to serve neighborhoods previously redlined by the company. The consent order still needs to be approved by the court to become final.

Fairway’s settlement announcement comes only five days after the DOJ announced a landmark redlining settlement with Citadel Federal Credit Union, discussed here, marking the first such agreement with a credit union in the DOJ’s history.

Our Take:

As President Biden’s term draws to a close, the federal regulators are predictably conducting a full-court push to accelerate redlining enforcement actions and public settlements under the “Combatting Redlining Initiative,” which has been a signature issue of the Biden administration. We expect to see more redlining settlements through the end of 2024 and into early 2025, but whether this unprecedented federal initiative continues clearly depends on the outcome of the presidential election.