For the past six months, we have received calls from banks and non-depository mortgage lenders regarding Department of Justice (“DOJ”) investigations into mortgage lending discrimination. These DOJ inquiries are bypassing the banks’ prudential regulators and the non-bank state regulators, which have often provided positive feedback on the lender’s fair lending assessments. As part of assisting clients with these investigations, we heard “rumblings” that the DOJ was conducting statistical analyses of Home Mortgage Disclosure Act (“HMDA”) Loan Application Register (“LAR”) data.

Banks should be aware that the DOJ launched a “Combatting Redlining” Initiative (the “CRI”). The CRI will be led by the DOJ’s Civil Rights Division’s Housing and Civil Enforcement Section in partnership with U.S. Attorney’s Offices. The CRI will:

• Utilize U.S. Attorneys’ Offices as force multipliers to ensure that fair lending enforcement is informed by local expertise on housing markets and the credit needs of local communities of color.
• Expand the DOJ’s analyses of potential redlining to both depository and non-depository institutions. 
• Strengthen the DOJ’s partnership with financial regulatory agencies to ensure the identification and referrals of fair lending violations to the Department of Justice.
• Increase coordination with State Attorneys General on potential fair lending violations.

Most importantly, our work indicates that the DOJ is actively assessing LAR data in industry-wide sweeps and assessing it for potential redlining, particular in CRA assessment areas. If your bank or non-depository lender has not conducted a similar analysis internally or through your outside counsel, you should prioritize this type of review. Generally, the ability to proactively address any statistical anomalies or program shortfalls is greatest before the DOJ or a regulator intervenes. Proactive compliance is the key to avoiding charges of ECOA or FHA violations. 

As we have noted since 2021, fair lending is one of the most (if not the most) important areas of compliance during the 2022-2023 regulatory cycle. This program further underscores a renewed regulatory focus and much tougher enforcement should be expected.