By Jacob Adelman, Associated Press
LOS ANGELES (AP) — Federal officials launched an investigation Wednesday to determine whether 22 mortgage lenders have been discriminating against qualified African-American and Latino borrowers by denying them government-insured loans.
The Department of Housing and Urban Development said the inquiry is in response to complaints filed Tuesday by the National Community Reinvestment Coalition (NCRC) accusing 22 banks nationwide of violating fair housing laws.
The coalition said the lenders denied Federal Housing Administration-insured loans to borrowers with credit scores that met the federal standard of 580 to be eligible for the insurance against default, but the lenders set higher credit score thresholds.
The Washington-based NCRC claims those requirements disproportionately harm black and Hispanic communities, since many minority borrowers' credit scores fall between the federal threshold of 580 and the higher benchmarks set by the banks.
The policies have "the effect of discriminating against African-Americans, Latinos, and residents of African-American and Latino neighborhoods across the nation," the group wrote in the complaints that it announced Wednesday.
The group also said the banks don't have a legitimate business reason to withhold mortgages from borrowers who meet FHA credit guidelines, since the government's insurance eliminates their risk.
"The decision by some banks to not follow the FHA's policy is cutting qualified borrowers off from accessing credit, and in doing so, causing harm to their ability to prosper, build wealth and for our economy to grow," NCRC President and CEO John Taylor said in a statement.
The complaints seek unspecified monetary damages and an injunction forcing banks to change their lending policies.
Lenders took issue with the coalition's allegations against Bank of the West, Paramount Residential Mortgage Group Inc., and MetLife Bank N.A., among others.
John Courson, president and CEO of the Mortgage Bankers Association, said lenders have always had the authority to use their own credit standards that exceed FHA's standards, noting that if an FHA loan goes bad, the lender is on the hook to pay back the FHA, as well as other costs.