Banking Law

Mortgage Discrimination and Fair Lending

Lenders cannot discriminate when making residential mortgages. Both federal and state anti-discrimination laws include extensive provisions covering various types of discrimination relating to real property. In addition, the US Supreme Court has held that enforcement of racially restrictive covenants in deeds is unconstitutional.

Fair Housing Act

The federal Fair Housing Act prohibits discrimination in the sale, leasing or financing of real estate for residences on the basis of race, color, religion, sex, disability, familial status and national origin by housing providers, such as landlords and real estate companies as well as other entities, such as municipalities, banks or other lending institutions as well as homeowners insurance companies.

Enforcement of the Fair Housing Act

The Department of Housing and Urban Development (HUD) investigates individual cases of discrimination in housing. If HUD determines that reasonable cause exists to believe that a discriminatory housing practice has occurred, then either the person complaining or the person against whom the complaint was filed may elect to have the case heard in federal court. In those instances, the Department of Justice will bring the case on behalf of the individual complainant.

Equal Credit Opportunity Act

Another antidiscrimination measure taken by Congress is the Equal Credit Opportunity Act, under which certain questions deemed discriminatory may not be asked in the application process for loans. Under the Equal Credit Opportunity Act, a creditor may not discriminate on the basis of sex, race, color, religion, national origin, marital status, age, source of income or the exercise of rights under the Consumer Credit Protection Act in any credit transaction. The lender is also limited by the Equal Credit Opportunity Act in evaluating the applicant based on considerations that are prohibited because of their discriminatory impact. If the denial is based on information obtained from a credit report, the applicant may, under the Fair Credit Reporting Act, receive the name and address of the credit reporting agency so that the content and nature of the negative information can be examined.

Department of Justice Lawsuit

The Department of Justice may start a lawsuit where it has reason to believe that a person or entity is engaged in a "pattern or practice" of discrimination or where a denial of rights to a group of persons raises an issue of general public importance. Through these lawsuits, the Department can obtain money damages for those individuals harmed by a defendant's discriminatory actions as well as preventing any further discriminatory conduct. The defendant may also be required to pay money penalties to the United States. In addition, where force or a threat of force is used to deny or interfere with fair housing rights, the Department of Justice may begin criminal proceedings. In cases involving discrimination in home mortgage loans or home improvement loans, the Department of Justice may file suit under both the Fair Housing Act and the Equal Credit Opportunity Act.

Home Mortgage Disclosure Act

The Home Mortgage Disclosure Act (HMDA) requires lenders to disclose lending activities with regard to suspect classifications. Banks and thrift institutions are scrutinized by their examiners who are mandated to consider an institution's record in lending money within their home communities under provisions of the Community Reinvestment Act. In the past, lenders have been accused of blocking out (''redlining'') entire neighborhoods from eligibility for mortgage lending. Redlining is made more difficult today because of the HMDA

HMDA requires lending institutions to report public loan data. This regulation provides the public with loan data that can be used to assist: in determining whether financial institutions are serving the housing needs of their communities; public officials in distributing public-sector investments so as to attract private investment to areas where it is needed; and in identifying possible discriminatory lending patterns. This regulation applies to certain financial institutions, including banks, savings associations, credit unions, and other mortgage lending institutions.

Filing a Complaint

Individuals who believe that they have been victims of an illegal housing practice may file a complaint with HUD or file their own lawsuit in federal or state court. You must file the complaint with HUD within one year of the incident you believe to be housing discrimination. You also have the right to file your own lawsuit in federal or state court within two years of the incident.

Questions for Your Attorney

  • What do I do if I believe I have been the victim of illegal discrimination in housing?
  • Does the Fair Housing Act prohibit discrimination on the basis of a person's sexual orientation?
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