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.

Discriminatory policies

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 probe

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 families.

"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:

  1. American Equity Mortgage, Inc.
  2. American Financial Resources
  3. Bank Of The West
  4. Banco Bilbao Vizcaya
  5. Citizens Financial
  6. Envoy Mortgage
  7. First Residential Mortgage
  8. Franklin American Mortgage Co
  9. Freedom Mortgage Corp.
  10. Metlife Bank, N.A.
  11. Nationstar Mortgage LLC
  12. New Day Financial, LLC
  13. New Penn Financial, LLC
  14. Paramount Residential Mortgage
  15. Phh Mortgage Corporation
  16. Prospect Mortgage, LLC
  17. Securitynational Mortgage
  18. Shore Mortgage
  19. Sierra Pacific Mortgage Co.
  20. Stearns Lending, Inc.
  21. Synovus/ Bank Of North Georgia
  22. Wr Starkey Mortgage, LLP