INTRODUCTION
This case is brought by the United States to vindicate the rights of persons whom the
United States claims were injured by alleged violations of the fair lending, fair housing and
consumer protection laws and regulations, as set forth above. The Complaint alleges that Delta
is engaged in the business of making subprime home mortgage loans; that a large part of its
business is concentrated in the minority residential areas of Kings and Queens Counties, New
York; that the majority of its loans are refinancing loans for the purpose of debt consolidation;
that the majority of its borrowers in these counties are presented to Delta by mortgage brokers;
that brokers submitting loans to Delta charge up to 10% of the loan amount as a "broker fee,"
unless state law provides for a lower amount; and that, during the period January 1996 through
December 1998, approximately 17.5 percent of Delta's loans in Kings and Queens Counties,
New York were high fee loans covered by HOEPA.
The United States alleges that Delta violated ECOA and FHA by approving and funding
loans with disparate broker fees that resulted in African American female borrowers being
charged more on average than white male borrowers were charged and that the higher prices
charged to African American females were not based on differences in risk of repayment. The
United States does not claim that Delta discriminated in charging borrowers disparate fees that
were set by Delta, but rather in acceding to the discretionary prices that were charged by
mortgage brokers for the loans made by Delta.
The United States alleges that Delta violated RESPA because it contends that in certain
cases the fees received by mortgage brokers were not for services actually performed or were
higher than an amount reasonably related to the value of goods and facilities provided and
services performed, and, as such, constituted illegal payments for the referral of mortgage loan
business or unearned fees.
The United States alleges that Delta Funding violated HOEPA because it contends that
Delta made certain loans based on borrowers' equity in their homes rather than the borrowers'
ability to repay the obligation, and included prohibited prepayment and increased interest rate
default provisions in certain HOEPA loan documents.
The allegations of the Complaint concern the period January 1996 through December
1998, during which Delta made more than 5,000 home mortgage loans to borrowers in Kings and
Queens Counties, New York. Delta conducts its home mortgage lending business in more than
20 states other than New York, but almost half of its lending is in that state.
Delta denies all allegations in the United States' Complaint and that any of its actions
have constituted violations of the ECOA, FHA, RESPA, HOEPA or any other fair housing, fair
lending or consumer protection law. In particular, Delta disputes the validity of the statistical
analyses the United States relied upon as the principal basis for its ECOA and FHA claims,
because Delta's own analyses did not reveal statistically significant differences in the prices paid
by borrowers in protected classes. Delta further maintains that the United States' theories of
liability regarding loans brought to it by mortgage brokers are legally insupportable, because,
inter alia, they seek to hold a lender responsible for the conduct of independent third parties.
Delta disputes the United States' RESPA claims, and maintains that the broker
compensation at issue in the Complaint was reasonably related to the value of the goods,
facilities and services provided by brokers in similar transactions in similar markets.
Delta also disputes the United States' HOEPA claims, and contends that it underwrites all
of its loans, including loans covered by HOEPA, based on the borrower's ability to repay, and
does not contract for or charge prohibited prepayment penalties or default interest on HOEPA
loans.
Although Delta disputes each of the United States' allegations, it is nevertheless
committed to furthering the spirit of fair lending and other consumer credit laws by going beyond
what Delta believes is required under applicable law to remedy the violations alleged in the
Complaint.
RESOLUTION OF THE DISPUTE
The parties have agreed that in order to avoid costly litigation, this controversy should be
resolved voluntarily, and that the terms of this Settlement Agreement shall govern Delta's
practices in all geographic areas in which Delta makes loans. The parties have also agreed that
there should be no evidentiary hearing, trial or other adjudication on the merits, and that entry of
this Settlement Agreement is not to be construed as an admission by Delta of the validity of the
claims asserted against it.
Now therefore, on the basis of the foregoing representations of the United States and
Delta, Delta, its officials, and employees, as well as their successors, collectively referred to as
"Delta", are hereby ORDERED as follows:
MONETARY COMPENSATION
On September 17, 1999, the Superintendent of Banks of New York State ("NYSBD") and
Delta entered into a Remediation Agreement resolving NYSBD's allegations that its examination
of Delta's lending practices revealed violations of the FHA, ECOA, RESPA and HOEPA and
Section 296-a of the New York Executive Law. The settlement includes a $7,250,000.00
"Remediation Fund" by Delta and an "Amelioration Fund" consisting of 525,000 unregistered
shares of common stock ("Stock") of Delta Financial Corporation. The "Remediation Fund" and
the proceeds from the sale of the Stock in the "Amelioration Fund" shall be used to compensate
borrowers identified by the NYSBD and the federal agencies.
One of the purposes of the Remediation Fund is to compensate New York State
borrowers, including residents of minority areas and African American females identified by the
Department of Justice and the NYSBD, who obtained home mortgage loans from Delta between
October 1, 1995 and September 17, 1999 and who allegedly paid more for their loans than the
average borrower who was a resident of non-minority areas or the average non-minority
borrower, and New York State borrowers with respect to whom the NYSBD alleges Delta
violated HOEPA or RESPA. Compensation will be in the form of reductions to monthly
mortgage payments on a going forward basis as set forth in the September 17, 1999 Remediation
Agreement executed by the NYSBD and Delta.
The "Amelioration Fund" will be used to provide monetary restitution to borrowers who
were allegedly harmed by Delta's alleged fair lending, RESPA, and/or HOEPA violations, as
identified by the Department of Justice and the NYSBD. Restitution must be paid to all eligible
New York State borrowers before restitution is made to borrowers outside New York State. Any
borrower to whom compensation is awarded from the Remediation Fund or Amelioration Fund
shall be required, prior to receiving any such compensation, to sign a general release.
