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How to Investigate a Fair Lending Case
Overview of Disparate Impact ClaimsFacially neutral policy or practiceAdversely impacts a class protected by the
Fair Housing ActWithout a legitimate justificationDespite the availability of less discriminatory
alternatives
Two Kinds of CasesPricing or denial cases challenging the
treatment of applicantsPolicy cases challenging access to credit
Evidence of Pricing or Denial DisparitiesHMDA data publically available todayHMDA data publically available under
reformsInformation available to HUD/DOJ
o Additional HMDA fields & Federal Reserve outlier list
o HAMP datao FHA loan datao HERA section 1128 data on interest rate
disparities
Impact of Pricing and Denials Impact upon similarly-situated (similarly-credit-worthy)
borrowersUnderwriting factors may explain some disparitiesImpacts
o U. S. v. AIG/WFI complaint: Alleges black borrowers charged total broker fees 20 basis points higher on average than white borrowers
o HUD v. MortgageIT complaint: Alleges black and Hispanic borrowers charged APRs on average 6 to 14 basis points more and approximately $1000 more in fees than similarly-situated white borrowers
o HUD v. Quicken Loans complaint: Alleges that, compared with similarly-situated white applicants, black applicants experienced 2% to 5% higher denial rates and Hispanic applicants experienced 2% to 4% higher denial rates
Impact of PoliciesUnderwriting exclusions or limitations (e.g.,
row-houses, Native American lands)Lack of data on denials or borrowers subject
to policiesCensus or other data on affected population
Legitimate JustificationLenders make decisions based on risk of
default (safety & soundness)Requires proofProof can’t be hypothetical or speculative
Less Discriminatory AlternativesUnlimited discretion may be addressed by
guidelines and/or capsA lender’s later adoption of reforms may
demonstrate available alternativesYou need to understand the business in order
to understand the alternatives
