In a new compliance bulletin (Bulletin 2015-02), the CFPB “reminds” creditors of their obligation not to discriminate against applicants because their income includes vouchers from the Section 8 Housing Choice Voucher (HCV) Homeownership program. The CFPB states in the bulletin that it “has become aware of one or more institutions excluding or refusing to consider income derived from the Section 8 HCV Homeownership Program during mortgage loan application and underwriting processes. Some institutions have restricted the use of Section 8 HCV Homeownership Program vouchers to only certain home mortgage loan products or delivery channels.”
The Section 8 HCV Homeownership Program was created to assist low-income, first-time homebuyers in purchasing homes and is funded by HUD and administered by participating local Public Housing Authorities (PHA). Through the program, a participating PHA can provide an eligible consumer with monthly housing assistance payments to help pay for homeownership expenses associated with a housing unit purchased in accordance with HUD’s regulations.
In the bulletin, the CFPB references the ECOA and Regulation B prohibition that bars a creditor from discriminating in any aspect of a credit transaction against an applicant “because all or part of the applicant’s income derives from any public assistance program.” The CFPB notes that because “public assistance” as defined by Regulation B includes “mortgage supplement or assistance programs,” mortgage assistance provided under the Section 8 HCV Homeownership Program is income derived from a public assistance program for purposes of the ECOA and Regulation B. It also notes the while Regulation B allows a creditor to consider, in a judgmental system of evaluating creditworthiness, whether an applicant’s income derives from any public assistance program to determine a pertinent element of creditworthiness, a creditor may not automatically discount or exclude protected income from consideration and can only discount or exclude such income based on the applicant’s actual circumstances.
The CFPB states that disparate treatment prohibited under the ECOA and Regulation B can exist when a creditor excludes or refuses to consider Section 8 HCV Homeownership Program vouchers as a source of income or accepts the vouchers only for certain mortgage loan products or delivery channels. The CFPB also references the possibility that an underwriting policy can violate the ECOA and Regulation B based on its disparate impact even when a creditor has no intent to discriminate and the practice appears neutral on its face.
The CFPB comments that an institution can better manage fair lending risk in this area through “a clear articulation of underwriting policies regarding income derived from public assistance programs; training of underwriters, mortgage loan originators, and others involved in mortgage loan origination; and careful monitoring for compliance.”