September 2012

Federal fair lending laws prohibit discrimination in credit transactions. The Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act prohibit discrimination in mortgage lending on the basis of certain factors including race or color, religion, national origin, sex, marital status, age, handicap or an applicant’s receipt of public assistance funds.

The spotlight in this blog post is on the tension between the potential requirements of fair lending laws and the regulatory pressure to originate relatively standardized mortgage products under relatively stringent underwriting guidelines. To the extent that tighter lending policies and a menu of plain vanilla mortgage products restrict access to credit in a way that disproportionately affects a protected class of borrowers, an increase in the number of disparate impact challenges by regulators and the Department of Justice (the “DOJ”) may result — regardless of intent to discriminate and regardless of whether lending policies appear neutral on their face. Disparate impact theory may also be a basis for liability under the Fair Housing Act and the ECOA.Continue Reading Damned if You Do, Damned if You Don’t: Origination of “Qualified” Residential Mortgages May Trigger Disparate Impact Fair Lending Claims

Earlier this summer, the New York State Assembly passed the “Foreclosure Fraud Prevention Act of 2012” which imposes criminal liability on those in the residential mortgage business who use allegedly fraudulent and deceptive practices in connection with a foreclosure action, and the Managers who “recklessly tolerate” any such practices. Despite the swift passage in the Assembly, it is unlikely that the proposed legislation will be taken up by the New York Senate before the 2012 legislative session formally adjourns in January. If this bill is to move forward, the most likely course will be for the Assembly to re-enact it in 2013 and then send it to the Senate for consideration. But because of the committed support of New York Attorney General Eric T. Schneiderman, it is likely that this bill will be kicking around Albany for several more months – so let’s take a closer look at what might end up on the books.Continue Reading A Closer Look at New York’s “Foreclosure Fraud Prevention Act”