HUD Reached Record-Breaking Settlement in Redlining Case

By: Melanie Brody, Tori Shinohara, Christa Bieker

On May 26, 2015, the Department of Housing and Urban Development (“HUD” or the “Department”) announced an approximately $200 million settlement with Associated Bank resolving allegations that the bank engaged in racial redlining in violation of the Fair Housing Act.

HUD alleged that from 2008 through 2010, Wisconsin-based Associated Bank discriminated on the basis of race and national origin by disproportionately denying the loan applications of African-American and Hispanic applicants. HUD further alleged that the bank underserved neighborhoods with significant African-American or Hispanic populations. HUD based its allegations, in part, on the Department’s analysis of Home Mortgage Disclosure Act data covering five metropolitan areas in Wisconsin, Illinois, and Minnesota from 2008 through 2013. According to the settlement agreement, the analysis found that “compared to other lenders, Associated Bank’s lending in majority-minority census tracts was lower than in other neighborhoods, and the difference was statistically significant.”

According to the Department, Associated Bank’s allegedly “smaller market share in higher minority population census tracts than elsewhere” violates the Fair Housing Act, which makes it unlawful to discriminate in the terms, conditions, or privileges of sale of a dwelling because of race or national origin. The Fair Housing Act also prohibits any entity whose business includes residential real estate-related transactions from discriminating against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race or national origin. Associated Bank denies allegations that it engaged in discriminatory lending and reported that an analysis completed by an outside consulting firm of residential loans made by the bank revealed no evidence of disparate treatment on a prohibited basis.

The settlement agreement requires Associated Bank to take numerous steps over the next three years. First, the settlement requires the bank to pay nearly $10 million by offering low interest rate home mortgages and down payment and closing cost assistance to some borrowers in certain majority-minority areas. Additionally, Associated Bank must invest nearly $200 million in increasing home mortgage lending in majority-minority areas, provide nearly $3 million to help homeowners in majority-minority communities repair their homes, pay $1.4 million to support affirmative marketing of loans in minority areas, and commit $1.35 million to community reinvestment and fair lending education. The bank must also open four loan production offices in majority-minority areas and three branches in or near majority-minority areas. Finally, the settlement requires Associated Bank to offer fair housing training to all employees engaged in residential lending activities and maintain a second-level review process for all denied residential loans.

According to HUD, this is the largest settlement of its kind, and HUD Secretary Julian Castro said it “sends a strong message that HUD does not tolerate practices that unfairly restrict an equal and open housing market.”

HUD, the Consumer Financial Protection Bureau (“CFPB”), and the Department of Justice have recently expressed serious concern about access to credit for consumers residing in majority-minority geographies. Further, the CFPB has publicly indicated that it currently is investigating several cases of potential redlining. Given that redlining is now a major area of regulatory and enforcement focus, mortgage lenders should consider taking steps to evaluate their redlining risk.