The New York Department of Financial Services (DFS) recently announced that it has entered into an agreement with Hunt Mortgage, a licensed mortgage banker, to address the DFS’s findings that there was a “demonstrable lack of lending to minorities and in majority-minority neighborhoods in Western and Central New York by Hunt Mortgage.”  DFS also released a report on redlining in the Buffalo metropolitan area.

Hunt Agreement.  The Agreement relates to Hunt’s residential mortgage lending practices and arises out of DFS’s review of Hunt’s HMDA data from 2016 to 2019.  It recites that DFS reviewed Hunt’s fair lending policies, fair lending training materials, marketing and advertising policies, marketing efforts, marketing materials and underwriting and pricing procedures, as well as additional lending data provided by Hunt, and took testimony from Hunt officials.  Although DFS found no evidence of intentional discrimination and made no finding of any fair lending violations, it did find weakness in Hunt’s fair lending and compliance programs.  More specifically, it found that Hunt made no efforts to define the areas it serves, did not track marketing efforts, including where marketing materials were sent, and did not take any targeted efforts to ensure that it was serving all races and classes equally.

The Agreement sets forth steps Hunt has agreed to take “in a good faith effort” to increase its residential lending to minorities and in majority-minority neighborhoods.  These steps include the following:

  • Updating Hunt’s Fair Lending Policy to (1) reflect the lending areas Hunt serves by specifically defining the lending areas it will target (Lending Area) to include certain metropolitan statistical areas, (2) include a goal of directing 25% of marketing and advertising materials to minority neighborhoods or minorities, and (3) explain how Hunt’s marketing and advertising statistics will be measured, tracked, and reported to DFS.
  • Investing $50,000 in advertising and marketing designed to reach potential applicants who reside in majority-minority census tracts in the Lending Area.  Marketing shall include, at a minimum, the following components:
    • Holding quarterly outreach events for residents of majority-minority neighborhoods  to inform attendees of Hunt’s products and services, with such events to be targeted at neighborhood residents, real estate brokers and agents, developers and public or private entities engaged in residential real estate-related businesses in majority-minority neighborhoods.
    • Creating point-of-distribution materials, such as posters, billboards, and brochures targeted toward minority communities to advertise Hunt’s products and services, with such materials to be displayed in Hunt’s branch offices and other appropriate locations throughout the majority-minority neighborhoods in the Lending Area.
    • Distributing advertisements by direct mail targeted to residents in majority-minority neighborhoods in the Lending Area.
    • Distributing advertisements through Hunt’s website and using other means of online advertising targeted at minority borrowers and residents of majority-minority neighborhoods in the Lending Area, such as web banner advertising, text advertising, sponsored search engine results, social media, mobile advertising, and email advertising.
    • Offering and advertising credit counseling services.
  • Implementing a consumer complaint policy, with a member of the Board of Directors appointed to review all complaints on a monthly basis and brief the Board.
  • Establishing a special finance program to provide discounted or subsidized financing on loans to minority borrowers, with the total amount of discounts and subsidies to be at least $150,000 over a three-year period.
  • Retaining an independent third party to conduct an annual audit of Hunt’s fair lending practices, general compliance efforts, and compliance with the Agreement.

The DFS redlining report discussed below confirms our understanding that DFS is pursuing fair lending investigations of at least two nonbank mortgage lenders.  In the report, DFS states that it has been using HMDA data to inform fair lending investigations of other lenders who have been found to be lending overwhelmingly to white borrowers and making loans to  minority borrowers and in minority-majority areas at substantially lower numbers than other institutions in the Buffalo metropolitan area.  According to the report, these investigations are ongoing and DFS will announce findings as those cases are resolved.  DFS notes, however that it has found that many of the companies “suffer from the same basic failing: a general lack of attention to whether they are serving the entire Buffalo community, including minorities and majority-minority neighborhoods.”  DFS indicates that these companies generally “make little or no effort to obtain business in minority areas, do not have adequate fair lending compliance programs, and do not track whether or how well they are serving minority populations.”  

Redlining report.  Based on DFS’s analysis of HMDA data for lenders in the Buffalo market, the report includes the following findings:

  • Although minorities are about 20 percent of the Buffalo metro area’s population, only 9.74 percent of total loans made in the Buffalo market are made to minorities.
  • Nonbank mortgage lenders in the Buffalo market lent at lower rates in majority-minority neighborhoods than depository institutions did.

The report includes the following recommendations:

  • New York’s Community Reinvestment Act only applies to banks.  Because a majority of loans nationwide are made by nonbank mortgage lenders, a substantial portion of the mortgage lending market is exempt from CRA requirements.  Accordingly, New York’s CRA should be amended to apply to nonbank mortgage lenders.
  • New York’s Department of State should conduct an investigation of real estate agents who make referrals to nonbank lenders to determine whether the agents are engaged in any prohibited discriminatory activity that could be affecting mortgage lending patterns.