Mortgage Lender, U.S. Settle Suit Over Loan-Pricing Bias
May 19, 2011
WASHINGTON -- The Justice Department has settled a case against a Long Beach, Calif., mortgage lender involving charges that the company charged higher prices for mortgage loans made to women, minorities and the elderly. As part of the agreement, Long Beach Mortgage Co. will pay $3 million to African-American, Hispanic, female and elderly borrowers that were victims of the alleged pricing practices. The company will also spend another $1 million educating consumers on how to shop for the most advantageous loan. The Justice Department investigation stemmed from a 1993 examination by the Office of Thrift Supervision that determined the lender may have engaged in discriminatory conduct. The department said it investigated the company's lending practices from January 1991 through June 2009 and confirmed the OTS's findings. In a suit filed in U.S. District Court in Los Angeles, the Justice Department alleged that Long Beach engaged in a practice of discrimination when making home equity, home purchasing and home-refinancing loans in violation of the Fair Housing Act and Equal Credit Opportunity Act. Long Beach, which makes most of its loans to less creditworthy borrowers -- these are called B and C loans -- established base prices for its loans depending on a borrower's level of risk-a practice that wasn't challenged by the Justice Department. Then, Long Beach would permit brokers and employees to propose a loan price that exceeded the base price set by Long Beach for the stated risk level. The portion of the proposed price above the base price was unrelated to the qualifications of the borrower or the risk to the lender, and instead determined the compensation to be paid to the employee or broker, the department said. ``These practices allegedly were carried out in a way in which African-Americans, Hispanics, women and the elderly were charged higher rates than others,'' the department said. In a news release, Jackelyn Heatherly, Long Beach's president, said the ``company has a strict policy prohibiting discrimination,'' and ``we further dispute the validity of the statistical analysis relied upon by the Justice Department as the principal basis for its claims.'' Despite such differences, Mr. Heatherly said the company signed the agreement to show its commitment to assure ``that considerations such as race, national origin, gender or age play no role whatsoever in the price of credit.'' Long Beach will also have to establish programs to educate employees about the requirements of fair-lending laws and to periodically review broker-lending operations to ensure compliance with the laws.
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