A proposed settlement over allegations of illegal mortgage lending discrimination against majority-Black neighborhoods in the greater Birmingham, Ala., would require a mortgage company in Wisconsin to pay a civil money penalty of $1.9 million, provide $7 million in loan subsidies and invest at least $1 million in efforts to serve the area it redlined, the federal consumer bureau said Tuesday.
The Consumer Financial Protection Bureau (CFPB) and the Justice Department (DOJ) alleged in a court filing Tuesday that Fairway Independent Mortgage Corporation illegally redlined Black neighborhoods, including through its marketing and sales actions. They said Fairway’s actions discouraged people from applying for mortgage loans in the Birmingham metropolitan area’s Black neighborhoods.
The bureau said Fairway is a non-depository mortgage company incorporated in Texas and headquartered in Madison, Wis., that operates in the greater Birmingham area. Fairway acquired the mortgage company MortgageBanc in 2009, and since then has operated in the Birmingham-Hoover, Ala., metropolitan statistical area (Birmingham MSA) under the trade name MortgageBanc.
The CFPB said Fairway was the nation’s third- largest mortgage lender in 2023, receiving over 100,000 applications and originating over $24 billion in loans. It said Fairway is a closely held company, with Steve Jacobson as majority owner.
The CFPB and DOJ allege that Fairway violated the Equal Credit Opportunity Act (ECOA), the Consumer Financial Protection Act (CFPA), and the Fair Housing Act (FHA). Specific allegations against Fairway include:
- Failing to address known signs of discrimination: Fairway’s own data showed that it was failing to serve 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. Only 3.7% of Fairway’s applications from 2018 through 2022 were for properties in majority-Black areas, compared to 12.2% for Fairway’s peer lenders. This disparity was even higher in neighborhoods with 80% or more Black residents, where Fairway made loans at less than an eighth of the rate of its peer lenders. Despite these figures, Fairway failed to adopt any written plan for marketing or growth to address the concern.
- Redlining Black neighborhoods: From 2015 through 2022, Fairway operated three retail loan offices and three loan production desks located in real estate offices in the Birmingham metropolitan area, all of which were in majority-white areas. 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. Fairway predominantly directed its marketing to majority-white areas. By taking these actions, Fairway unlawfully discouraged mortgage loan applications for properties in majority-Black neighborhoods.
The proposed order filed by the CFPB and DOJ would require Fairway to:
- Pay a $1.9 million penalty, which would be paid into the CFPB’s Civil Penalty Fund, also referred to as the victims relief fund.
- Provide $7 million for a loan subsidy program. Fairway would be required to offer home purchase, refinance, and home improvement loans on a more affordable basis than otherwise available in majority-Black neighborhoods in the Birmingham metropolitan area. The program may provide lower interest rates, down payment assistance, closing cost assistance, or payment of initial mortgage insurance premiums.
- Pay at least $1 million to serve neighborhoods it redlined. To address some of the gap in credit access caused by its discriminatory activities, Fairway would be required to open or acquire a new loan production office or full-service retail office in a majority-Black neighborhood in the Birmingham metropolitan area. It would also be required to 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 it previously redlined.