The Justice Department has reached a $1.75 million settlement with The Mortgage Firm, a nonbank mortgage lender accused of redlining in Miami-Dade County. This marks the third redlining case resolved under the DOJ’s Combatting Redlining Initiative, highlighting ongoing scrutiny of discriminatory lending practices in the mortgage industry.

Allegations Against The Mortgage Firm

Between 2016 and 2021, The Mortgage Firm allegedly underperformed its peers in generating mortgage applications from majority-Black and Hispanic neighborhoods in Miami-Dade County. During this period, only 30.4% of the company’s mortgage applications originated from these areas, compared to 59% for its peers.

Additional findings included:

• Limited outreach and marketing to majority-Black and Hispanic communities.
• Minimal efforts to create referral networks in these areas.
• Failure to hire and retain Black and Hispanic loan officers.
• Inadequate resources for Spanish-speaking clients, including a lack of translated materials.

The DOJ also cited internal communications, including derogatory references to specific neighborhoods, as evidence of discriminatory intent.

Settlement Requirements

Under the proposed consent order, The Mortgage Firm must:

• Establish a $1.75 million loan subsidy fund to support lending in majority-Black and Hispanic neighborhoods.
• Conduct a Community Credit Needs Assessment.
• Enhance fair lending training programs.
• Increase diversity in its advertising and loan officer recruitment.
• Maintain at least one office in a majority-Black and Hispanic neighborhood.

Unlike previous redlining cases involving nonbank lenders, The Mortgage Firm will not pay a civil penalty.

Referral Networks and Disparate Impact

The DOJ attributed The Mortgage Firm’s discriminatory practices to its reliance on referral networks and insufficient oversight. The firm’s management did not track how loan officers generated leads, leading to a lack of engagement with diverse communities.

This reliance on referral networks disproportionately affected majority-Black and Hispanic neighborhoods, reinforcing patterns of exclusion and discouraging prospective applicants from seeking loans.

Wider Implications for the Industry

The case underscores growing regulatory scrutiny of discriminatory lending practices and the enforcement of the Equal Credit Opportunity Act (ECOA). A recent appeals court decision reinforced the CFPB’s authority to pursue cases involving the discouragement of credit applicants.

Industry experts warn of potential conflicts between fair lending enforcement and federal regulations, particularly in how regulators interpret redlining allegations and referral network practices.

Conclusion
The settlement with The Mortgage Firm highlights the DOJ’s commitment to addressing redlining and ensuring equitable access to credit. As regulators continue to scrutinize the mortgage industry, lenders must prioritize inclusive practices to avoid similar legal challenges.

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