Fair-Lending Lawsuit Against GFI Mortgage Bankers Underscores “Beware-the-Double-D” Warning
The lawsuit filed last week against GFI Mortgage Bankers is a sobering reminder that fair-lending scrutiny isn’t restricted to banks.
In case you missed the news, the U.S. Department of Justice and the U.S. Attorney’s office for the Southern District of New York filed a lawsuit April 2nd alleging that GFI, which has mortgage operations in seven states, charged African-American and Hispanic borrowers higher fees and interest rates on home-mortgage loans.
“For example, an African-American borrower who took out a home mortgage loan in 2007 paid on average approximately $7,500 more over the first four years of the loan than a similarly situated white borrower,” the DOJ reported in a news release. “For a Hispanic borrower, the difference was approximately $5,600 more over the first four years of the loan than a similarly situated white borrower. The disparities, based on race or national origin, are statistically significant, and are unrelated to credit risk or loan characteristic.”
According to the news release, a big reason for the disparities was a compensation program GFI had in place that provided financial incentives to loan officers to price loan products in a discriminatory manner.
The pricing discretion given to loan officers – coupled with the disparities – created a classic red flag that we call “the double D.” Too bad GFI didn’t see that red flag by doing a self-assessment early on.
GFI would be considered a relatively small lender by mortgage industry standards, with 2500 to 3000 applications per year. But the lawsuit against them helps illustrate an important reality: All mortgage companies are now expected to manage significantly broader fair-lending exposure, due to loan volumes, historically weak fair-lending policies and procedures, and the establishment of the Consumer Finance Protection Bureau.
Over the past couple of months, we’ve been helping an increasing number of mortgage companies manage their fair-lending analysis with TRUPOINT Analytics. Their foresight will help them avoid the headaches, court costs and damaged reputation now facing GFI Mortgage Bankers.