√ Follows governor's 2021 State of the State proposal to expand home ownership in historically redlined communities to bridge racial wealth gap
√ Report by Department of Financial Services finds significant lack of lending in majority-minority neighborhoods and to homebuyers of color, decades after redlining was banned by law
√ Report recommends legislative action to require nonbank mortgage lenders to comply with New York CRA, calls on federal government to take further action with respect to federally chartered institutions
√ DFS entered settlement with Hunt Mortgage aimed at improving poor performance in lending to communities and borrowers of color; several other DFS investigations are ongoing
Following Gov. Andrew Cuomo's 2021 State of the State proposal to increase homeownership rates in communities that have been adversely impacted by redlining, the governor on Thursday announced the findings of a new report by the New York State Department of Financial Services on redlining in the Buffalo metropolitan area.
His press release said, “Buffalo remains one of the most racially segregated cities in the United States decades after the practice of redlining and other forms of housing discrimination were banned by law. DFS' report found a distinct lack of lending by mortgage lenders, particularly non-depository lenders, continues today in Buffalo neighborhoods with majority-minority populations and to minority homebuyers in general.
“Redlining includes such illegal practices as refusing to do business in a neighborhood based on the racial or ethnic composition of a neighborhood's population, or imposing more onerous terms on home loans in a particular neighborhood in a discriminatory manner. The population of the City of Buffalo is approximately 47% white, 36.7% Black, and 11.6% Hispanic or Latino, and the population of the metro area is approximately 77% white, 12% Black, and 5% Hispanic or Latino. According to a recent report, in the city of Buffalo, 85% of people who identify as Black live in neighborhoods east of Main Street, which is where areas that were redlined in the 1930s are located.”
Cuomo said, "Underserved communities, especially families of color, continue to face housing discrimination, in the form of limited access to mortgage lending, facing a roadblock to achieve the American dream. The report reaffirms the importance of the State of the State proposal to increase access to mortgage loans to close the racial wealth gap to help us build back better for a fairer New York."
Superintendent of Financial Services Linda A. Lacewell said, "The findings of this report are particularly troubling. Homeownership is a critical path to building wealth and economic stability, and the data is clear: Families of color, particularly African Americans, do not have equal access to mortgage lending in Buffalo compared to white households. We now have the opportunity to right some of the wrongs of the past by looking at the entire problem and formulating solutions so the legacies of segregationist policies do not continue into the future."
The release continued, “The Buffalo market includes banks of all sizes, from large global banks to small local and community banks. The prominence of nonbank mortgage lenders focusing only on mortgage lending has increased significantly, with nonbank mortgage lenders originating 37% of mortgages in Buffalo between 2016 and 2019. Nationally, nonbank lenders have overtaken banks as the source of the majority of mortgages.”
The DFS investigation analyzed Home Mortgage Disclosure Act data for Buffalo and surrounding areas. Among other things, the DFS analysis found:
√ Only 9.74% of total loans made in the Buffalo Region are made to minorities, less than half of what would be expected given that minorities are about 20% of the metro area's population;
√ Nonbank mortgage lenders in the Buffalo market lent at lower rate in majority-minority neighborhoods than depository institutions did, despite the reverse being true statewide and nationally; and
√ Several of the nonbank mortgage lenders DFS investigated made little to no effort to do business in majority-minority neighborhoods, do not have adequate fair lending compliance programs, and do not track whether or how well they are serving populations of color.
Report recommendations include:
√ State Legislative Action: The state Community Reinvestment Act does not cover nonbank mortgage lenders; only banks must comply with its requirements. Applying the CRA to non-depository mortgage lenders would be an important step in addressing fair lending abuses in the New York residential loan market. This is increasingly important as nonbank mortgage lenders now make a majority of loans nationwide. Accordingly, the department recommends New York State Banking Law § 28-b, the state's CRA (which largely mirrors the federal CRA), be amended to apply to nonbank mortgage lenders.
√ Federal Government Action: The report calls on federal agencies, the U.S. Office of Comptroller of the Currency and the U.S. Consumer Financial Protection Bureau, to examine federally regulated institutions, state and federal, to investigate whether fair lending violations are occurring at Buffalo institutions that appear to be performing poorly based on statistical measures. The department's own jurisdiction in this area is limited to state-chartered banks and credit unions and DFS-licensed non-depository mortgage lenders.
√ Referral to New York State Department of State: The report recommends DOS conduct an investigation of real estate agents that several nonbank lenders largely relied on for business so as to determine their role.
The release explained, “These recommendations are timely and critical in light of the continued fight for racial, social and economic justice. Populations in historically redlined neighborhoods also continue to experience economic disadvantage including lack of access to quality financial services, more environmental hazards, lower life expectancy, and worse health outcomes than the overall population, which the COVID-19 crisis has further aggravated.”
Settlement with Nonbank Lender
The governor also announced DFS settled with Hunt Mortgage Corp., a nonbank mortgage lender. DFS' investigation found no evidence of intentional discrimination by Hunt Mortgage or a violation of fair lending laws. However, DFS found that “weaknesses in Hunt Mortgage's fair lending and compliance programs and lack of sufficient attention to fair lending issues contributed to the company's poor performance in lending to people of color and in majority-minority neighborhoods.” In a good faith effort, Hunt agreed to take significant steps to improve its service to the entire community, including the following:
√ Increasing marketing to people of color and within majority-minority neighborhoods;
√ Developing a special financing program that will provide $150,000 in discounted or subsidized financing on loans for properties located in majority-minority neighborhoods;
√ Providing annual fair lending training to Hunt Mortgage employees and agents with significant involvement in lending; and
√ Conducting an annual fair lending compliance audit.
DFS continues to investigate several other lenders and will announce findings as those cases are resolved.
To review the full report, including charts of lenders' performance, visit the DFS website.
To review the Hunt Mortgage settlement agreement, visit the DFS website.