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MORTGAGE BUSINESS: Credit Union Fair Lending Risk in Mortgage Lending

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BY DANIELLA CASSERES

Is your credit union involved in mortgage lending? If so, a recent Supreme Court decision will likely impact the fairness of your loan practices and policies. Regular monitoring of your disparate impact risk could safeguard you against costly claims. Learn more about the importance of statistical analysis for your CU’s neutrality. 

A recent U.S. Supreme Court decision has paved the way for increased regulatory compliance risk in the mortgage lending space.Although fair lending has long been a concern for banks and credit unions, the Supreme Court’s June 2015 decision, which confirmed that disparate impact is prohibited by the Fair Housing Act, may increase the number of fair lending claims against mortgage lenders.In Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc.,a majority in the Supreme Court held that the Texas Department violated the Fair Housing Act by awarding tax credits for low-income housing developments in predominantly minority neighborhoods.The Inclusive Communities Project, a non-profit group, sued the Texas Department because its allocation of tax credits disproportionately affected minority neighborhoods as opposed to Caucasian neighborhoods.

The Supreme Court’s recent interpretation of disparate impact as it relates to the Fair Housing Act is important because it permits fair lending claims absent a pleading of discriminatory intent. To bring a disparate impact claim, a plaintiff need only claim that a lender’s policy disproportionately impacts a protected class of borrowers based on race, color, religion, sex, familial status or national origin.A lender may implement otherwise lawful policies and activities; however, if its policies inadvertently affect a protected class of borrowers disproportionately, then the lender is subject to risk of violating the Fair Housing Act.Moreover, to overcome a disparate impact claim, a lender must prove that its policy, which affects protected classes, is necessary to conduct its business.However, it is unclear what the Court would deem a business necessity in the housing context and to what extent lenders will have discretion in determining what is necessary to operate their business.

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