Posts tagged ‘HUD’

HUD Prohibits Gender Identity and Sexual Orientation-based Discrimination

In one of the first examples of the dramatic impact the Biden Administration will have on housing policy, The Department of Housing and Urban Development (HUD) announced Friday that it was interpreting the Fair Housing Act as prohibiting discrimination against individuals on the basis of sexual orientation and gender identity. The announcement, which is an outgrowth of Executive Order 139.88, means that we will soon start seeing high profile enforcement actions based on alleged sexual orientation discrimination.

In one of the most important cases from its last term, the Supreme Court ruled that Title VII of the Civil Rights Act, which prohibits discrimination in employment on the basis sex, also applied to individuals discriminated against on the basis of their sexual oritentation or gender identity. In the memo released on Friday, HUD’s Office of Fair Housing and Equal Opportunity announced that the ruling extends to discrimination under the Fair Housing Act, which of course bars discrimination on the basis of race or sex. Effective immediately, HUD will “accept for filing and investigate all complaints of sex discrimination, including on the basis of gender identity or sexual oritentation.” The new announcement is intended to signal that this prohibition is going to be aggressively interpreted and enforced by HUD.

On a practical level, lenders in New York should already have policies which prohibit gender-based discrimination as a matter of state law. But now that HUD has issued this ruling, credit unions that lend in New York and in states which don’t already ban this type of discrimination should review their existing policies.

February 16, 2021 at 9:40 am Leave a comment

Like it or Not, CUs must Engage in the Climate Change Debate

Good morning, folks.

First, I want to assure you that the purpose of today’s blog is not to debate the science of climate change, or to suggest where I think it should be on the list of concerns considered by your executive team as it tries to position your credit union operations for the months and years ahead. The purpose of this blog is instead to inform you that, with yesterday’s announcement of executive orders calling for a government-wide approach to climate change, the industry at large as well as your individual credit union has become part of a discussion. It’s not if your credit union is going to take steps to mitigate the impact of climate change – but what those steps are going to be when regulators come knocking.

In reviewing yesterday’s executive order, the President didn’t specifically mention banking initiatives, but by including the Treasury Department and the HUD Secretary on the task force and emphasizing the relationship between economic justice and climate change initiatives, there’s little doubt that financial institutions will be asked to play a role in mitigating the effects of climate change. Plus, even though NCUA is an independent agency, there’s nothing to stop it from voluntarily working with the Biden administration on these issues and efforts. 

New York State’s Department of Financial Services has been at the forefront of this debate. In October, it issued this guidance making the argument for financial institutions to take an active role in integrating climate change considerations into their operations. It pointed out, for example, that extreme storms could have a disproportionately negative impact on regional and community banks which provided mortgages in impacted areas. On a more nebulous note, it argued that the transition away from a carbon-based economy will over time impact the underlying value of assets. DFS also issued specific expectations for the institutions it regulates. These include that they “start integrating the financial risks from climate change into their governance frameworks, risk management processes, and business strategies,” as well as to “start developing their approach to climate-related financial risk disclosure.” New York’s Superintendent Lacewell has recently highlighted the importance of this initiative. 

I know how much work all of you already have on your plate, and I also know that this has become one of those issues that can end a dinner party quicker than one hurricane can put a significant portion of Long Island underwater. But the sooner we lay out how we’re going to do our part, the better positioned we will be to prevent overly cumbersome, one-size-fits-all mandates.

January 28, 2021 at 9:49 am Leave a comment

HUD to Propose Controversial Changes to Disparate Impact Regulations

HUD will shortly be proposing major revisions to a 2013 Obama administration regulation that would make it much more difficult for homebuyers to prove that mortgage lenders have discriminated against them. Don’t start changing your policies anytime soon the reality is that these changes will be hugely controversial and will be challenged in court quicker then Christina El Moussa from Flip or Flop can get divorced, find a new husband, and start another show. Trust me she’s quick.

The draft was provided to politico and has not been formally proposed in the federal register.

Title VII of the civil rights act prohibits discrimination in the sale or rental of housing on the basis of race, color, religion, sex, disability, familiar status or national origin.The Department of Housing and Urban Development has responsibility for promulgating regulations to enforce this statute. Under the statute, intentionally discriminating against someone is clearly illegal. So, for example a lending policy, under which a bank or credit union explicitly does not provide loans to African Americans who live in certain communities, would be a slam dunk case of intentional discrimination. But, what happens in the case of a lending policy or procedure which negatively impacts protected classes for  legitimate reasons. For example, if your credit union decides to raise the minimum credit scores for mortgage applicants it will by definition exclude individuals who would have otherwise qualify for a mortgage loan. It may even disproportionally impact minorities within your field of membership.

In 2013, HUD promulgated disparate impact regulations. Under the current approach the plaintiff must prove that a challenged practice caused or predictably will cause a discriminatory effect. If this burden is met the lender then has the burden of proving that the challenged practice is necessary to achieve one or more substantial and legitimate non-discriminatory purposes.

If HUD goes forward with this new proposal it will be more difficult for plaintiffs to prove discrimination based on the impact of a lenders practices. Under the proposed changes plaintiffs seeking to prove disparate impact discrimination will have to prove five elements. Plaintiffs would be obligated to prove that the challenged policy is “arbitrary artificial and unnecessary to achieve a valid interest or legitimate objective.” Only if this standard is met would a defendant have the obligation to demonstrate why the policy is legitimate. Second, the plaintiff would have to allege that there is a “robust causal link between the challenged policy or practice and the disparate impact;” thirdly plaintiffs would have to allege that the challenged policy or practice has an adverse effect on members of a protected class, presumably meaning that plaintiffs cannot prove discriminatory impact based on the experiences of a few individuals. Fourth, the plaintiffs would have to prove that the disparate impact is significant. Finally, plaintiffs would have to show that there is a direct plausible link between the alleged injury and the challenged practice.

 The bottom line is that if these regulations are implemented as proposed it will be extremely difficult for plaintiffs to bring discrimination claims on the disparate impact theory.

 

August 5, 2019 at 10:09 am 1 comment

HUD Clarifies that DACA Recipients Are Not Eligible For Loans from the Federal Housing Administration

Good Morning folks. In a June 11th letter to Representative Peter Aguilar, HUD officially confirmed what had been speculated about for months: It was actively implementing a policy of denying FHA eligibility for FHA loans to DACA recipients.

 As I explained in this blog, confusion has been mounting for months over what exactly HUD’s policy is regarding DACA recipients. Remember, the Trump Administration has ended the program but has not formally revoked the immigration status of DACA eligible individuals. In 2012, the Obama Administration created the “Deferred Action for Childhood Arrivals” program. Under the program, persons born outside of the United State who entered the country illegally before the age of 16 are entitled to “deferred action” stemming from their immigration status provided they follow certain rules. The program allowed these individuals to obtain documentation which allowed them to, among other things, take out loans. In 2017, the Trump Administration put an end to the program.

 As it noted in the letter, HUD’s action is technically not a change in HUD’s lending policy. The critics say this is only partially true. This memo from the House Financial Services Committee summarizing a hearing on barriers to minority homeownership argues that since at least 2018, HUD “may have made an informal change to interpret its own existing regulations to consistently deny loans to DACA recipients where as previously, some lenders had been able to originate loans for DACA recipients.” In the meantime, both Fannie and Freddie have felt the need to publicly state that they will still purchase loans given to DACA recipients.  

This goes in to the “don’t shoot the messenger” category. Regardless of where you stand on the immigration debate, from a compliance standpoint it is prudent for you to understand what your policies and procedures are with regard to the immigration documentation for persons seeking loans. Given our current political environment, you may have less and less flexibility to make your own decisions regarding the propriety of some of these loans. The more information you have ahead of time, the more prepared you will be.

 

June 25, 2019 at 9:11 am Leave a comment

Facebook Has A New Pen Pal: The Senate Banks Committee

On Friday, the Chairman and Ranking Member of the Senate Banks Committee sent a politely worded letter to Facebook inquiring about its plans to move aggressively into the payments market by offering its users the opportunity to buy products directly from merchants using a Facebook backed coin or cryptocurrency depending on how nefarious you want to make its plans sound.

Why is this a big deal? Well how much money do you make off credit and debit card transactions issued by your credit union? If Facebook successfully integrates the coin payment platform into its infrastructure this would mean that 1/3 of the world’s population could start using Facebook to facilitate purchases, making Facebook an overnight threat to Visa and MasterCard.

In their letter to Facebook, following an article describing Facebook’s plans in the Wall Street Journal, the Senators explain that in addition to Facebook’s cryptocurrency ambitions, “privacy experts have raised questions about Facebook’s extensive data collection practices and whether any of the data collected by Facebook is being used for purposes that do or should subject Facebook to the Fair Credit Reporting Act.”

As with so many other aspects of its growth Facebook is somewhat clumsily taking aim at the financial sector. In addition to questions about its cyber currency ambitions, it is currently being sued by HUD over claims that it violates its advertising platform allows lenders to effectively engage in digital redlining by choosing such finely tuned demographic target audiences in such a way that lenders can avoid offering financial products and services to minorities.

Assembly To Hold Municipal Deposit Hearing Next Monday

In case you haven’t heard, the Assembly Banks and Local Governments committee will be holding a hearing on municipal deposits next Monday. An assortment of credit union, bank and local government organizations have been invited to testify. This is a key opportunity for credit unions to respond to banker municipal deposit myths and finally allow public tax dollars to be placed in those financial institutions where they will most benefit taxpayers.

Department of Treasury Issues OFAC Guidance

I’ve been analyzing this guidance for a couple weeks now trying to figure out how significant it is and why it was issued in the first place. It seems to me that nothing in this release should be a surprise to anyone who has tried to comply with OFAC which I’m assuming almost all of my faithful readers have. Nevertheless, any time the Department of Treasury comes out with guidance on this issue you should read it and compare your practices with those expected by the regulator.

May 13, 2019 at 8:45 am Leave a comment

Ben Carson Could Reshape Mortgage Lending Laws

bencarsonThe selection of Ben Carson as the Trump Administration’s nominee to be the Secretary of Housing and Urban Development (HUD) puts the former Johns Hopkins neurosurgeon turned conservative presidential candidate in a position to decisively and quickly reshape the fair lending landscape in a way that will make it easier for your credit union to deny mortgage loans without fearing a lawsuit.

HUD is responsible for enforcing the Fair Housing Act. As I’ve written in previous blogs, it interprets this law in its regulations as prohibiting lending practices that are intentionally discriminatory as well as those that have the effect of discriminating on the basis of someone’s protected status.

HUD has been steadfast in holding to this interpretation even as it has faced challenges questioning the propriety of its interpretation. For example, in 2013 it issued an updated interpretation of its analysis. At the time, it was assumed that the Supreme Court would be taking a look at how the FHA should be interpreted. HUD also refused to exempt lenders who make Qualified Mortgages that comply with CFPB’s regulations from possible enforcement actions if their Qualified Mortgages had a discriminatory effect on mortgage lending to minorities.

It’s always dangerous to speculate about what will happen in a Trump Administration and perhaps even foolhardy to speculate about the policy predilections of Dr. Carson, who has no formal background in this area, but I’m feeling lucky. I expect him to reexamine and narrow HUD’s interpretation of the Fair Housing Act. Conservatives believe that intent matters. Criminalizing lawful conduct because of its incidental impact is a recipe for regulatory overreach that deters lenders from making reasonable judgements about who can and can’t afford a home.

December 7, 2016 at 9:10 am Leave a comment

And The Band Played On

Well, it’s official.  In the political equivalent of holding your breath until you get your way, so-called House Conservatives are so convinced that Obamacare should not exist that they really feel that if they keep government from spending money on itself long enough, legislators will come to their senses and decide not to implement the President’s major domestic achievement after all.  While this abject lesson in political imbecility will undoubtedly do some damage to the economy, it won’t have much of a short-term impact on the day-to-day operation of credit unions or their regulators.  It’s full speed ahead for Dodd-Frank’s regulations.

Yesterday, HUD came out with regulations proposing its version of a qualified mortgage.  What’s more, we only have thirty days to respond to this proposed QM standard, even though regulations of this importance should have at least a 60 day comment period.  In explaining why it is fast tracking the proposal, the regulator noted that unless it can get its regulations promulgated by January 10, 2014 an important source of financing for first time homebuyers and minorities will be subject to the CFPB’s QM definition.  HUD is concerned that the CFPB’s QM criteria “is not focused on, to the extent that HUD’s definition is required to be, the populations that the mission of HUD is to serve.”  This is the bluntest assessment I have yet seen that Dodd-Frank may result in fewer individuals being qualified for home ownership.  The problem I have with HUD’s 30-day comment period is that it has had several months to respond to CFPB’s proposal.  The issues involved here are too complicated to be rushed through without an adequate public vetting and 30 days just isn’t enough time for an intelligent look for what HUD is proposing.

In the meantime, NCUA sent out a letter about the impending government shutdown.  Since it is funded by fees as opposed to general fund appropriations it avoids being subject to the shutdown.  And, of course, none of this directly impact’s New York State government.  Yesterday, Eric Schneiderman, New York’s Attorney General, announced a settlement with a group of debt collectors in relation to their collection efforts on behalf of pay day lenders.  The settlement is the latest in a series of escalating legal skirmishes between the state and pay day lenders over whether New York has the ability to clamp down on out of state pay day lenders and those based on tribal lands.

On that note, have a nice day.

October 1, 2013 at 8:20 am 4 comments

Sexual Orientation and Fair Lending Laws

The Supreme Court’s recent rulings striking down the Defense of Marriage Act (DOMA) and refusing to consider a challenge to California’s same sex marriage law are sure to give new energy to efforts to stamp out discrimination based on sexual orientation.  Interestingly, banking regulators have been ahead of the curve in clamping down on discrimination based on sexual orientation.  If you haven’t done so already (and if you’re located in New York you should have), it is time to include sexual orientation in the protected class list that your credit union does not discriminate against when making credit decisions.

This is not as obvious as you might think.  Congress will probably be one of the last institutions to pass laws banning discrimination on the basis of sexual orientation.  So, for example, Regulation B, which implements the Equal Credit Opportunity Act, does not prohibit such discrimination.  Nevertheless, federal agencies have been quietly moving since at least 2010 to clamp down on discriminatory lending practices.  In the latest edition of the Federal Reserve Board’s Consumer Compliance Outlook (which, as I’ve said before is a must read for anyone involved in compliance), an analysis of fair lending examination standards points out that since 2010 HUD guidance has forbidden discrimination against lesbian, gay, bisexual and transgendered people in housing transactions over which it has jurisdiction.  In addition, a regulation it promulgated in 2012 banned such discrimination.  Since HUD has jurisdiction over FHA loans, lenders are prohibited from engaging in practices that have the effect of discriminating against these individuals when providing these mortgages.  HUD even brought a lawsuit against Bank of America claiming that it was violating this rule by denying a loan to a same-sex couple in Florida seeking an FHA-insured mortgage.

State law is going to be the driving force behind increased enforcement in this area for the foreseeable future.  Section 296-a of New York’s Executive Law already prohibits discrimination based on sexual orientation in making credit determinations.

Remember with or without an explicit legal mandate, there is nothing to stop your credit union from explicitly banning discrimination on the basis of sexual orientation.  Given what is likely to be more aggressive federal enforcement in this area, not to mention the moral case for recognizing changing societal attitudes, it is time to consider changing your policy if you haven’t done so already.

July 2, 2013 at 7:40 am 1 comment

Can A Qualified Mortgage Violate the Law?

NCUA announced this week that it will be hosting a Fair Housing Webinar on April 4.  It has also come out with an industry letter addressing the issue.  Needless to say, housing policy is getting a lot of scrutiny and here’s a reason why.  The first thing any compliance officer learns about lending is that credit unions and banks are legally prohibited not only from making loans that intentionally discriminate against an individual, but also from implementing policies and practices that have the effect of discriminating against a person on an illegal basis, such as the person’s sex, race  or age.

The interesting thing is that a plain reading of the Fair Housing Act (FHA) does not speak of outlawing policies that have the unintentional effect of disproportionately impacting a protected group.  HUD, however, has interpreted the statute this way and by and large the courts have agreed.  So why in February did it promulgate regulations that it says simply codifies existing disparate impact regulations?  In other words, HUD proposed a regulation not to change existing law but to summarize existing law, which it argues, is well settled.  Now, as I like to say, lawyers are paid to be paranoids, but, as Henry Kissinger liked to say even paranoids have enemies.  Something fishy is going on here.

There’s been growing legal analysis lately of a very intriguing question:  can a bank or credit union have a policy of only providing qualified mortgages under the Dodd-Frank Act, which are supposed to be given a “safe harbor” from legal action and still violate HUD’s interpretation of the FHA.  The answer, judging by HUD’s response in the preamble to its regulations, seems to be maybe.  Specifically, during the comment period to HUD’s new regulation, lenders complying with the new Dodd-Frank mortgage requirements questioned whether they will face increased liability as a result of HUD’s interpretation of disparate impact regulations.  The working assumption is that a lending institution that decides simply to provide qualified mortgages may disproportionately impact minority groups that are less likely to meet the stricter underwriting standards.

HUD’s response is not reassuring.  HUD reiterated that a lender is free to defend any allegations of illegal discriminatory effects by meeting its burden of proof demonstrating that there is a legally sufficient justification for its underwriting standards.  It goes on to repeatedly state that nothing has really changed, although it does think that lenders should review their internal lending policies explaining that it hopes its new rule will encourage lenders, who already have analyzed the impact that their policies have on lending decisions, to “review those analyses in light of its new regulations.”

Here’s the problem.  Lenders meeting qualified mortgage standards are not supposed to have a burden of proof imposed on them.  By pointing out lenders are free to meet their burden of proof to demonstrate why a lending policy is legally sufficient, HUD seems to be suggesting that a qualified mortgage policy will still have to be justified where borrowers can show that it has a discriminatory impact on mortgage lending.  So much for the safe harbor.

To be fair, some people argue that this analysis is nonsense.  This is no different than existing law, they argue, where lenders have always had the burden of justifying policies that do have a negative impact on minority groups.  Plus, if Fannie and Freddie are willing to buy a mortgage, it is going to be considered a qualified mortgage, so what’s the big deal.  First, prior to Dodd-Frank, there has never been a federally mandated underwriting standard intended to apply to all mortgages and no lending institution should strive to comply with those standards only to be sued for meeting them.

Second, don’t be so sure that Fannie and Freddie’s underwriting standards won’t face legal scrutiny.  HUD has moved in the past to work with the GSEs when it felt their policies were hurting minorities and lending advocates would presumably be more than willing to do so in the future.

March 21, 2013 at 8:53 am Leave a comment

Is RESPA Dead?

Not by a long shot, but a recent Supreme Court decision has not gotten as much attention as it should.  It is one of two cases to be decided by the Court this year that will help clarify exactly how the Real Estate Settlement Procedures Act (RESPA) is to be interpreted in the real world, as opposed to the administrative dreamland that I think HUD has allowed itself to slip into when interpreting the statute.

In Freeman et al vs. Quicken Loans, Inc., the Court heard arguments from three married couples who obtained mortgages from Quicken Loans.  They claimed that Quicken violated RESPA by charging them fees for which no services were provided, such as nearly $1,000 in loan discount fees that did not result in a loan discount, processing fees and origination fees.  Section 2607(b) of RESPA prohibits persons from giving or accepting “any portion, split or percentage of any charge made or received for the rendering of real estate settlement services. . . other than for services actually performed.”

The case raised this question:  can a company violate this provision of the statute by charging unearned fees that it does not split with a third-party?  Under its authority to interpret RESPA, in 2001 HUD issued an interpretation that clarified that this provision extended not only to traditional fee splitting arrangements, but to any situation involving unearned fees, regardless of whether or not a third-party was involved.

In ruling in favor of Quicken, Justice Scalia wrote for the majority of the Court when he held that HUD’s interpretation was so off the mark that the Court didn’t even have to consider giving it deference.  As for the provision itself, in order to establish its violation “a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons.”

The case is significant for a few reasons.  It is the first of two cases dealing with the circumstances under which homeowners can bring suits under RESPA.  A more significant case I talked about in a previous blog has yet to be decided.  Second, the case clarifies that individual originators can charge what they want without implicating RESPA so long as they don’t split any of the fees.  The compliance and legal geek in me finds the third potential implication most intriguing.  The case is yet another signal that federal courts are moving away from showing deference to agency interpretations of federal statute.  What I see developing is an increasingly contentious battle between the federal courts and the CFPB, which of course now has the power to interpret almost all the major consumer protection statutes, including RESPA. 

I have a sneaking suspicion that we have already seen the first implications of this trend with the CFPB’s decision not to appeal a court ruling prohibiting regulators from issuing regulations imposing restrictions on the ability of card issuers to charge fees prior to opening credit card accounts.  My guess is that the CFPB decided that this was a fight it didn’t want to have now.

May 31, 2012 at 7:07 am Leave a comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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