The National Community Reinvestment Coalition (NCRC) is
calling for a federal probe of the nation's largest Federal Housing
Administration (FHA) approved lenders.
According to NCRC, an association of more than 600
community-based organizations, the lenders may be violating federal housing
rules by refusing to offer loans to consumers who meet the FHA standard of a
minimum credit score of 580 and above with a 3.5 percent down payment.
A recent NCRC investigation found that the majority of top
FHA lenders failed to offer applications for federal-guaranteed loans to
potentially qualified borrowers with credit scores below 620 or 640, even
though FHA guarantees loans with credit scores to 580.
These lenders have policies that establish "credit
overlays" above the FHA policy, NCRC says, with minimum credit score requirements as
high as 640. One-third of all consumers have credit scores under 620.
"Critical to our nation's economic progress is the
ability of homeowners to get quality refinancing, and for homebuyers to reclaim
vacant houses by accessing quality mortgage credit, " said John Taylor,
NCRC President and CEO.
Taylor says the decision by some banks to not follow the
FHA's policy is cutting qualified borrowers off from accessing credit, and in
doing so, "causing harm to their ability to prosper, build wealth and for our
economy to grow." He calls the decision "arbitrary," because the loans are
fully guaranteed, whether the borrower's credit score is 580 or 780.
NCRC is filing complaints against 22 lenders who have
policies that are not in compliance with the FHA's policy, claiming they
violate the Federal Fair Housing Act, because the policy has a disparate impact
on black and Latino communities.
NCRC conducted "mystery shopping" tests on the
nation's top FHA approved lenders. Of all lenders tested, 32, or 65 percent,
refused to consider consumers with credit scores below 620. An additional 11,
or 22 percent, refused to extend credit to consumers with credit scores below
640. Only five, or 10 percent, had policies in place that served consumers with
credit scores at 580 and up, in accordance with the FHA underwriting policy. The FHA provides lenders guarantees on
its loans, which historically have financed the mortgages of working class
"By denying access to FHA loans to qualified,
creditworthy individuals, without regard for the actual risk posed to the
institution, lenders are discouraging the flow of credit and capital into
working class communities, including minority neighborhoods," said David
Berenbaum, Chief Program Officer of the National Community Reinvestment
Coalition. "These policies amount to discrimination in violation of the federal
Fair Housing Act."
NCRC also charges that the lenders' policies violate the
Equal Credit Opportunity Act and the Community Reinvestment Act and is calling
on the following agencies to investigate: the U.S. Departments of Justice and
Housing and Urban Development, the Federal Reserve, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, and the Office of the
Comptroller of the Currency and the Consumer Financial Protection Bureau.
NCRC has filed complaints against the following 22 lenders so far:
- American Equity Mortgage, Inc.
- American Financial Resources
- Bank Of The West
- Banco Bilbao Vizcaya
- Citizens Financial
- Envoy Mortgage
- First Residential Mortgage
- Franklin American Mortgage Co
- Freedom Mortgage Corp.
- Metlife Bank, N.A.
- Nationstar Mortgage LLC
- New Day Financial, LLC
- New Penn Financial, LLC
- Paramount Residential Mortgage
- Phh Mortgage Corporation
- Prospect Mortgage, LLC
- Securitynational Mortgage
- Shore Mortgage
- Sierra Pacific Mortgage Co.
- Stearns Lending, Inc.
- Synovus/ Bank Of North Georgia
- Wr Starkey Mortgage, LLP