A Fine for Doing Good – The Justice Department Sues Bank for Prudent Lending, Settles Case for $2 Million

A Fine for Doing Good – The Justice Department Sues Bank for Prudent Lending, Settles Case for $2 Million

From today’s WTF report…

Banks have been widely castigated for causing the housing bust by lending too much to borrowers who couldn’t repay, but now Eric Holder’s Department of Justice has taken its antidiscrimination campaign to new lengths by whacking a bank for having been too prudent.

The report from the WSJ then goes on to state…

In a complaint filed Wednesday and settled the same day, Justice claimed that California-based Luther Burbank Savings violated the 1968 Fair Housing Act and 1974 Equal Credit Opportunity Act by setting a policy that had a “disparate impact” on minorities. Between 2006 and mid-2011, 5.2% of Luther’s single-family residential mortgage loans went to African-Americans and Hispanics, compared to an average of 41.7% for other lenders in the area. The complaint doesn’t cite evidence of intentional discrimination because there wasn’t any.

Luther Burbank might not have been in this business were it not for government. The bank was largely focused on multi-family mortgages until its regulator, the former Office of Thrift Supervision, asked the lender to diversify its portfolio in the mid-2000s. Luther Burbank then hired a team to do “nontraditional” loans such as interest-only or option adjustable-rate mortgages that the bank would keep on its own books. Yes, this is the same stuff that eventually blew up the housing market.

Luther Burbank wasn’t a fly-by-night operator that marketed those loans to any and all. The bank insisted on a minimum $400,000 loan amount and made loans with an average 680 FICO score and 67% loan-to-value. Over the period that Justice examined, Luther Burbank foreclosed on a mere 11 borrowers out of 629 loans outstanding—a loss ratio of 1.75%. In a normal world, Luther Burbank would get a medal from regulators for its risk management, having chosen borrowers even at the height of the housing mania who could meet their monthly payments.

And it appears the DOJ does not approve of this type of lending…

But Assistant Attorney General for Civil Rights Thomas Perez has a different priority: He wants banks to meet lending quotas to minorities—regardless of whether those borrowers can afford the loans. Many minority borrowers have low incomes that make them riskier lending bets. Is that a bank’s fault?

Luther Burbank admitted no guilt and said it settled to avoid costly litigation, which makes sense for a small, local lender that has to worry about its reputational risk. The bank has agreed to ratchet down its minimum loan to $20,000 and will now commit $2.2 million to a “special financing program” for “qualified borrowers,” payouts for local community groups, and “consumer education programs.” Justice has the final say on who gets that money.

All in a days work at the Department of Justice…



4 Responses to “A Fine for Doing Good – The Justice Department Sues Bank for Prudent Lending, Settles Case for $2 Million”
  1. bobbi swann says:

    @ Debbie – I am a mortgage broker. I don’t care what color, creed, religion or whatever you are. To me, if you qualify for a mortgage to purchase a home you are going to get the same service from me in locating a lender. If you have been discriminated, you have options with the state that you reside. I can only recall one case that I was fairly certain that discrimination took place with a lender and that was age. Because the client did not want to cause a ruffle, I filed the complaint myself. I let them do the legwork and investigation. What was the nature of your discrimination? EVERY citizen should be treated equally and be given the same weight in lending. If not, we will be heading for another crash of another proportion. This country is purposely being divided by race and inequality and for a reason. Just look at where such division is being promoted in one particular campaign for re-election! Never before has this been such a division in presidential election campaigning…ask yourself why?????

  2. stripes says:

    Could they be anymore OBVIOUS….? These imposters who have hijacked the PRIVATE SECTORS. wealth just don’t want the PRIVATE SECTOR to OWN ANYTHING OF VALUE…That is what this evil plan is all about.

  3. Alabama John says:

    Its never the governments fault. You are sorry and no good for not paying your mortgage and you took out too much that you cannot now repay.
    Its never we made decisions that caused you to be laid off and lose your paycheck that you paid your mortgage out of right on time for many years and we’re sorry you are unemployed.
    This apology should be sent to, lets see, as of yesterday 24 million unemployed that have for the most part given up on finding an equal paying job.
    Whose fault is it really that you had to stop paying?
    Talk about a first class passing the buck job. The problem is the normal citizen sees right through this sales job, but the politicians still think they are doing such a good sales or snow job that the average american citizen is still falling for it.
    Who is the really stupid one?

  4. Debbie says:

    This is the first time that I am taking issue with 4closurefraud. I am a minority and many times banks institute programs where there are discriminatory practices but because of how they are implemented maybe hard to prove. I am professional who has been discriminated against.

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