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Civil Rights Group Charges Five Lenders With Discrimination

March 19, 2006
The civil rights era of the 1960s produced fair housing laws to protect minority home buyers. Now, 40 years later, a civil rights group charges some mortgage lenders are flouting those laws.

The National Community Reinvestment Coalition (NCRC), represented by the Washington, D.C. civil rights law firm of Relman and Associates, has filed five civil rights complaints to the U.S. Department of Housing and Urban Development against the five firms following what it calls a comprehensive investigation documenting discrimination in lending in violation of the Federal Fair Housing Act.

The companies named in the individual complaints are:

1. Fieldstone Investment Company and its subsidiary Fieldstone Mortgage Company, nationwide retail and wholesale lenders based in Columbia and Baltimore, Maryland.

2. Novastar Financial Inc. and its subsidiary Novastar Mortgage Inc, nationwide retail and wholesale lenders based in Kansas City, Missouri.

3. South Star Funding, a nationwide wholesale lender based in Atlanta, Georgia.

4. EquiFirst Corporation, and its affiliates, Regions Financial Corporation, Regions Bank, Regions Mortgage and EFC Holdings Corporation nationwide retail and wholesale lenders based in Charlotte, North Carolina and Birmingham Alabama.

5. Gelt Financial Corporation, a/k/a Gelt Holdings, Inc., based in Southampton, Pennsylvania and lending in that state, New Jersey, Delaware, Maryland and Florida.

The NCRC says its investigation exposes a national problem of underwriting practices through the use of minimum loan values to redline low to moderate income communities and/or exclude row houses that are situated in African American or Latino communities.

"These companies are denying the dream of homeownership to countless working families." said John Taylor, President & CEO of NCRC. "NCRC calls upon the United States Department of Housing and Urban Development Office of Fair Housing & Equal Opportunity to stop this blatantly discriminatory policy and ensure equal access to credit for all Americans."

Taylor cites figures from the 2000 Census, which he says shows the practice excludes loans for up to 25 percent of homes in metropolitan areas, and has even a greater impact in rural areas.

NCRC's investigation included "mystery shopping," review of the respondents Home Mortgage Disclosure Act (HMDA) Data, analysis of Census and residential property data, and a review of each companies' underwriting practices. The group charges these companies have instituted a discriminatory minimum value policy of denying home equity loans to applicants whose homes are valued at less than $100,000. Four of the lenders (EquiFirst Corporation, Fieldstone Investment Company, Nova Star Financial, Inc. and South Star Funding) also limit or exclude loans made on row homes.

David Berenbaum, NCRC's Executive Vice President, says the minimum value policy has both the purpose and effect of discriminating against African Americans and residents of African-American neighborhoods, Latinos and others where the majority of homes are valued under the lender minimum loan value and favoring residents located in majority white neighborhoods.

"No legitimate business justification exists to justify this blatant violation of the Federal Fair Housing Act," Taylor said.

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