ACLU Fair Lending Case Against Mortgage Securitizer Highlights New Fair Lending Litigation Risk; Fair Lending Litigation Against Lenders Continues

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On October 15, the ACLU filed a putative class action suit on behalf of a group of private citizens against a financial institution alleged to have financed and purchased subprime mortgage loans to be included in mortgage backed securities. The complaint alleges that the institution implemented policies and procedures that supported the market for subprime loans in the Detroit area so that it could purchase, pool, and securitize those loans. The plaintiffs claim those policies violated the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) because they disproportionately impacted minority borrowers who were more likely to receive subprime loans, putting those borrowers at higher risk of default and foreclosure. The suit seeks injunctive relief, including a court appointed monitor to ensure compliance with any court order or decree, as well as unspecified monetary damages. The National Consumer Law Center, which developed the case with the ACLU, reportedly is investigating similar activity by other mortgage securitizers, suggesting additional suits could be filed. The ACLU also released a report on the fair lending aspects of mortgage securitization and called for, among other things, DOJ and HUD to expand their Fair Housing Testing Program, and for Congress to increase penalties for FHA and ECOA violations and provide additional funding for DOJ/HUD fair lending enforcement.

On October 18, three Georgia counties filed suit on behalf of their communities and certain residents against a financial institution the counties allege targets FHA-protected minority borrowers with “predatory high cost, subprime, ALT-A and conforming mortgages without considering the borrowers’ ability to repay such loans.” The complaint claims that the lender’s practices caused and continue to cause minority borrowers to be more at risk of default and foreclosure than similarly situated white borrowers, and, as such, constitute a pattern or practice of discriminatory lending and reverse redlining in violation of the FHA. The counties are seeking injunctive relief and unspecified compensatory and punitive damages.

BuckleySandler’s Fair and Responsible Financial Services Team has extensive experience litigating fair lending cases and assisting financial institutions seeking to manage fair lending risk. For a review of fair lending red flags for banks and strategies for addressing them, see our recent article.

 

Published In: Business Torts Updates, Civil Remedies Updates, Finance & Banking Updates, Residential Real Estate Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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