Fairway blasts federal regulators in $10M redlining settlement

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Fairway Independent Mortgage Corp. has agreed to a $10 million settlement with federal regulators who accused the nation’s third-largest mortgage lender of redlining in the metro Birmingham, Alabama, market.

Madison, Wisconsin-based Fairway entered the six-county Birmingham market in 2009 with the acquisition of MortgageBanc. On Tuesday, Fairway became the 15th lender to settle with the Department of Justice since the agency launched an initiative to combat redlining three years ago.

“While Fairway claimed to serve the entire metropolitan area, it concentrated all its retail loan offices in majority-white areas, directed less than 3 percent of its direct mail advertising to consumers in majority-Black areas, and for years discouraged homeownership in majority-Black areas by generating loan applications at a rate far below its peer institutions,” the Department of Justice said in announcing the settlement.

“This settlement makes clear our intent to uproot modern-day redlining in every corner of the country, including in the deep South,” Assistant Attorney General Kristen Clarke said in a statement.

But in a rare public airing of grievances, Fairway claims the government agencies it settled with “did not identify any evidence of redlining or other discrimination,” and accuses the agencies of acting in “bad faith” by characterizing Fairway’s actions as intentional, willful and reckless.

“Fairway vigorously defended itself against the government agencies’ allegations and continues to deny that the company engaged in any discriminatory behavior,” Fairway said in a statement.

Fairway’s statement casts the company as a victim of politics, noting that the CFPB kicked off its investigation in 2021, “the first full day after the Biden Administration took office,” and that the complaint against it was “filed days before the impending Presidential election.”

The Justice Department joined a claim by the Consumer Financial Protection Bureau (CFPB) alleging that from 2018 through 2022, Fairway failed to locate any of its retail offices in majority-Black areas or incentivize loan officers to serve borrowers in those neighborhoods.

Fairway allegedly directed less than 3 percent of its direct mail advertising to residents of majority-Black areas from 2018 to 2020, the CFPB said in an Oct. 15 complaint.

Fairway’s Birmingham originations, 2018-2021

As a result, only 3.3 percent of the 7,913 mortgages Fairway made in the six-county Birmingham market from 2018 through 2022 were for properties in majority-Black areas, the government alleged.

During that period, Fairway’s peers made 10 percent of their loans in those areas — more than three times the rate of Fairway.

“Even when Fairway made loans in majority-Black areas … the borrowers themselves were less likely to be Black,” the complaint said.

A little more than a third of the loans (38 percent) Fairway made in majority-Black neighborhoods went to applicants who were identified as Black, compared to 74 percent of loans made by Fairway’s peers, the government alleged.

Under the terms of the proposed consent order — which must still be approved by the court — Fairway neither admitted nor denied the allegations in the complaint, but agreed to:

• Pay a $1.9 million civil penalty
• Open or acquire a new loan production office or full-service retail office in a majority-Black neighborhood in the Birmingham market
• Provide $7 million for a loan subsidy program to offer affordable home purchase, refinance and home improvement loans in Birmingham’s majority-Black neighborhoods
• Spend an additional $1 million promoting the loan subsidy fund through advertising and outreach, consumer financial education and partnerships with community groups

“The CFPB and DOJ are holding Fairway accountable for redlining Black neighborhoods,” CFPB Director Rohit Chopra said in a statement. “Fairway’s unlawful redlining discouraged families from seeking loans for homes in Birmingham’s Black neighborhoods.”

Fairway engaged in a pattern or practice of discrimination that “was intentional and willful and was implemented with reckless disregard for the rights of individuals based on their race or color,” the CFPB alleged in its complaint.

Fairway cries foul

According to the CFPB, Fairway was the nation’s third-largest mortgage lender in 2023, fielding more than 100,000 applications and originating over $24 billion in loans. A closely held company, CEO Steve Jacobson is the majority owner.

After the settlement was announced, Fairway issued a strongly worded statement Tuesday evening taking issue with allegations leveled in the complaint, which the company said it didn’t see until after agreeing to settle.

“The complaint significantly mischaracterizes the matter at issue and appears to be intentionally inflammatory in nature,” Fairway said. “For one, the complaint characterizes Fairway’s actions as willful and reckless, a claim that was mutually rejected by the parties prior to settlement.”

The CFPB’s complaint “characterizes Fairway’s actions as willful and intentional, despite the government agencies’ failure to identify any evidence to support such a claim. Fairway is disappointed by these statements in the complaint, which suggest bad faith by the part of the government agencies.”

Fairway claims that in terms of raw units, it took more loan applications and made more loans in majority-Black census tracts during the time in question than any other nonbank lender with a physical presence in the Birmingham market.

“Despite a multi-year investigation … the government agencies did not identify any evidence of redlining or other discrimination by Fairway,” the company claimed. “Rather, the government agencies relied on a quota analysis to allege that Fairway was not meeting the needs of residents of majority-Black census tracts, in contravention of the U.S. Supreme Court’s 2023 decisions regarding affirmative action.”

Branches locations, marketing scrutinized

A nonbank lender, Fairway sponsors 2,605 mortgage loan originators working out of 649 branch offices nationwide, according to records maintained by the Nationwide Multistate Licensing System.

In their complaint, government prosecutors alleged Fairway’s practices violated the Fair Housing Act (FHA), the Equal Credit Opportunity Act (ECOA) and the Consumer Financial Protection Act of 2010.

From 2015 through 2022, Fairway operated three retail loan offices and three loan production desks located in real estate offices in the Birmingham market — all located in majority-white areas, the complaint said.

“Fairway’s primary method of marketing and generating mortgage loan applications in the Birmingham [market] was through its loan officers’ referral sources of real estate agents and builders, current and former customers, and individuals in their churches, local schools, family, and social organizations,” prosecutors said.

Less than 3 percent of Fairway’s referrals of applicants or prospective applicants were from majority-Black areas, the complaint alleged.

One of Fairway’s largest marketing expenditures in 2018 and 2019 was marketing services agreements with two real estate brokerages, ARC Realty and LIST Birmingham, located in majority-white areas, prosecutors said.

“Fairway predominantly directed mail and other marketing and advertising to majority-white areas, and also directed almost no advertising specifically at majority-Black areas and high-Black areas,” the complaint alleged.

Prosecutors also cited instances in which Fairway employees “exchanged emails using derogatory or discriminatory language.”

In a 2018 email chain, a top-producing loan officer referred to an applicant’s friends as “thug friends,” and wrote of the applicant, “We don’t need him as a client. He is a liability waiting to happen.”

Prosecutors said data provided by Fairway shows that the applicant, who was African American, withdrew his application in 2018.

In another 2020 email chain, a top-producing loan officer referred to Ensley, a predominantly Black neighborhood in Birmingham, as “the GHETTO,” and assured a loan processor, “We don’t own a house there I promise. LOL!”

The Fairway processor responded “ROFLOL” [rolling on the floor laughing out loud].

In addition to denying that it engaged in discriminatory behavior, Fairway also maintains its “strong disagreement with the government agencies’ legal and statistical approach to identifying potential discrimination. However, to resolve the matter and curb the further expenditure of resources, Fairway determined that a settlement with the [CFPB] and the DOJ would be the most appropriate solution.”

Since launching its initiative to combat redlining in 2021, the Department of Justice has reached settlements with 15 mortgage lenders totaling $154 million, including:

• Citadel Federal Credit Union, which on Oct. 10 agreed to invest $6.5 million in predominantly Black and Hispanic neighborhoods in Philadelphia County.
• New Jersey-based OceanFirst Bank, which in September agreed to a $15.1 million settlement after acquiring Sun National Bank and Two River Community Bank and closing branches that were located in majority-Black, Hispanic and Asian neighborhoods.
• First National Bank of Pennsylvania, which in February agreed to invest at least $11.75 million in a loan subsidy fund to provide better access to mortgages and home improvement loans to residents of majority-Black and Hispanic neighborhoods in the Charlotte and Winston-Salem, North Carolina, markets.
• Jacksonville, Florida-based Ameris Bank, which agreed in October 2023 to a $9 million settlement aimed at improving access to credit in majority-Black and Hispanic neighborhoods.
• Lakeland Bank, which agreed in September 2022 to invest at least $12 million in a loan subsidy fund for residents of Black and Hispanic neighborhoods in the Newark, New Jersey, metropolitan area, including neighborhoods in Essex, Somerset and Union counties.
• Berkshire Hathaway-owned Trident Mortgage Company, which agreed in July 2022 to invest more than $20 million to create homeownership opportunities in communities of color around Philadelphia.

The DoJ said its redlining initiative is expected to generate more than $1 billion in investment in communities of color in markets including Houston, Memphis, Los Angeles and Philadelphia.

City National Bank, which entered into a record $31 million redlining settlement last year, for example, is now offering grants of up to $50,000 in majority-Black or Hispanic neighborhoods in the metro Los Angeles market as part of a larger initiative to boost lending to underserved communities in several states.

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Email Matt Carter