Mortgage lender settles accusations of redlining Black neighborhoods in Alabama

(CN) — The United States Department of Justice Tuesday announced a $9.9 million settlement with a mortgage lender accused of redlining predominantly Black neighborhoods around Birmingham, Alabama.

Fairway Independent Mortgage Corporation engaged in a pattern and practice of racially based lending discrimination through its marketing and sales strategies, the Justice Department said in a statement.

For a period between 2018 and 2022, only 3.7% of Fairway’s applications were generated in majority-Black areas, compared to 12.2% for peer lenders. In neighborhoods with 80% or more Black residents, Fairway “made loans at less than one-eighth of the rate of its peer lenders,” according to the department.

At the same time, all its retail loan offices were concentrated in white-majority areas, while only 3% of its direct mail advertising targeted majority Black neighborhoods. According to the DOJ and Consumer Financial Protection Bureau, Fairway was aware of the discrepancies yet failed to institute remedial measures in violation of the Fair Housing Act and Equal Credit Opportunity Act.

“Since at least 2017, Fairway provided its board of directors, chief executive officer, and other members of its executive committee with updates on the status of its fair lending monitoring, including the results of Fairway’s annual monitoring for redlining risk,” the Justice Department says in its complaint. “For years, Fairway failed to meaningfully address data showing that Fairway was underserving majority-minority and majority-Black areas in the Birmingham MSA … As of October 2022, Fairway’s Birmingham branch leadership had still not taken any steps to address redlining risk in the Birmingham [area], other than telling loan officers not to discriminate.”

As a result of the lender’s practices, Black borrowers were effectively discouraged from seeking home ownership. Systemically, the broader practice of redlining has also prevented Black families from achieving generational wealth, which has been cited for resulting in health inequalities among other effects.

Fairway, which operates in Birmingham under the name MortgageBanc, is headquartered in Madison, Wisconsin. In 2022, it was the fifth-largest lender in the nation by origination volume and ninth-largest by application volume.

The proposed consent order requires the approval of a federal judge in the Northern District of Alabama, but requires Fairway to provide $7 million toward a program to reach more Black-majority neighborhoods in Birmingham by offering lower rates, assistance with down payments or closing costs, or payment of initial mortgage insurance premiums. The lender must also invest $1 million in Black-majority neighborhood by opening an office and offering mortgage education programs and nonprofit partnerships. Finally, Fairway will be required to deposit another $1.9 million to the CFPB’s civil penalty fund, which is established to help victims.

The case is the third redlining enforcement action brought jointly by the Justice Department and the Consumer Financial Protection Bureau under the Combat Redlining Initiative, launched in 2021. A separate redlining case against City National Bank in 2023 resulted in the largest such settlement in history, $31 million. The Justice Department said it had secured more than $150 million in settlements as a result of its anti-redlining initiative.

In a statement, Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said the settlement will help level the credit playing field for Birmingham’s Black community, which “bears the legacy of discriminatory redlining and other exclusionary policies.”

“This settlement will provide Birmingham’s Black neighborhoods with the access to credit they have long been denied and increase opportunities for homeownership and generational wealth,” Clarke said.

Attorney General Merrick Garland  said the settlement will allow those affected to “inherit a legacy of home ownership that they too often have been denied. This case is a reminder that redlining is not a relic of the past, and the Justice Department will continue to work urgently to combat lending discrimination wherever it arises and to secure relief for the communities harmed by it.”

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