Housing Section Documents
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
UNITED STATES OF AMERICA,
Plaintiff,
v.
SHAWMUT MORTGAGE COMPANY,
Defendant.
__________________________________
CONSENT DECREE
The United States files this Consent Decree simultaneously with
its complaint against the Shawmut Mortgage Company ("the mortgage
company" or "the lender") alleging violations of the Fair Housing
Act (Title VIII of the Civil Rights Act of 1968, as amended by
the Fair Housing Amendments Act of 1988), 42 U.S.C. §§ 3601-3619:
the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-691f; and the
Federal Trade Commission Act, 15 U.S.C. §§ 45(A) (1), 45(m) (1)
(A), 49, 53(b), 56(a), and 57b. The Complaint alleges that the
mortgage company has engaged in policies and practices that
discriminated on the basis of race and national origin in its
home mortgage lending business.
The lender denies all of the allegations in the Complaint and
states that it has never discriminated on the basis of race or
national origin in its mortgage lending business.
More specifically, the United States alleges that the mortgage
company, during the period January 1990 through October 1992,
engaged in lending practices that discriminated on the basis of race and national origin by requiring a higher level of
documentation of black and Hispanic applicants' qualifying
information than it required of white applicants; failing to make
the same level of effort to obtain documentation of black and
Hispanic applicants' qualifying information that was made to
obtain documentation of the qualifying information of white
applicants; failing to obtain qualifying information from black
and Hispanic applicants that would compensate for apparent
disqualifying information; applying more stringent underwriting
standards to black and Hispanic applicants by failing to consider
the offsetting or compensating information they supplied to the
same extent that such information was considered in approving the
loan applications of similarly situated white applicants; failing
to approve loans for black and Hispanic applicants whose
qualifications as documented in the mortgage company's loan files
did not meet all of the mortgage company's underwriting standards
but nevertheless met standards that were equal to or greater than
those applied to similarly situated white applicants; and failing
to take steps to insure that the policy of granting exceptions
for certain applicants did not result in the application of
discriminatory standards to black and Hispanic applicants.
The parties have agreed that, in order to avoid protracted and
costly litigation, this controversy should be resolved
voluntarily. The parties have also agreed that there should be no
evidentiary hearing, trial or other adjudication on the merits,
and that the entry of this Consent Decree is not to be construed
as an admission by the mortgage company of the validity of any of
the claims asserted in this action.
Now therefore, on the basis of the foregoing representations of
the United States and the mortgage company, it is hereby ORDERED,
ADJUDGED, and DECREED as follows:
- GENERAL INJUNCTIVE PROVISION
- The Shawmut Mortgage Company, its officials, employees, and agents, as well as successors, as provided in paragraph 10,
below, are enjoined from engaging in any act or practice that
discriminates on the basis of race or national origin in the
provision of home mortgages, or in the provision of services or
facilities in connection with any such transactions; and from
imposing on the basis of race or national origin different terms
or conditions for the availability of home mortgage loans. Fair
Housing Act, 42 U.S.C. §§ 3604 and 3605; Equal Credit Opportunity
Act, 15 U.S.C. § 1691(a)(1), and Regulation B, 12 C.F.R. § 202.
- SPECIFIC INJUNCTIVE PROVISIONS
- The United States recognizes that the mortgage company,
beginning in late 1991, and particularly since October 1992, has
implemented a comprehensive fair lending compliance program to
improve its outreach to potential black and Hispanic borrowers
and to ensure that black and Hispanic borrowers who apply for
credit are treated in a non-discriminatory fashion, both in the
processing of their applications before underwriting, and in the
underwriting decisions themselves. Several of the key elements of
this program include the planned opening of a branch in the
predominantly minority community of Roxbury, Massachusetts; the
change of the compensation structure of loan originators to add
incentives to encourage the origination of loans on lower-valued
homes; the extension of its advertising program in minority-oriented media, such as newspapers and radio stations; the
extension of its marketing program efforts to reach into
predominantly minority neighborhoods; the training of loan
counsellors, loan originators, loan processors and loan
underwriters in the principles of fair processing and fair
underwriting of loan applications; and the expansion of the role
of its Mortgage Review Committee, which re-evaluates the
qualifications of all denied minority applicants, to include all
other applicants whose applications were denied and whose incomes
are 115% or less than the median for their metropolitan areas.
The United States believes that this fair lending compliance
program, as more specifically described below and in Attachment 1
to this Decree, is now working well and is adequate to ensure the
lender's compliance with the fair lending provisions of the Equal
Credit opportunity Act and the Fair Housing Act. Those aspects of
the fair lending compliance program the mortgage company has
devised to insure that all home loan applications are fully
processed and fairly considered are set out below. In addition,
Attachment 1 describes the lender's innovative loan products
designed to facilitate home ownership by low-to-moderate income
persons; its participation in a variety of state and federal loan
programs with similar goals; and the marketing and outreach
activities it uses to inform potential low-to-moderate income and
minority borrowers of loan availability.
- Mortgage Review Committees
In November 1991 the mortgage company established Mortgage Review
committees ("MRCs"), one for Massachusetts/New Hampshire and one
for Connecticut/Rhode Island, to provide a mandatory second look
at all minority applications before they are declined. The
mortgage company gave the committees authority to approve the
loan, affirm the underwriter's decision, or return the file with
a request for more information. The MRCs initially consisted
entirely of senior managers. The committee structure has become
more formalized over time. Since October 1992 the MRCs have been
staffed by an array of experienced managers and underwriters,
including experienced lending professionals who are members of
minority groups. In addition, in April 1993 the lender's minority
advocate, an African-American with extensive experience in
affordable housing issues, joined both MRCs.
The MRC process has evolved in other ways as well. Over time, the
committee members have kept more detailed minutes and have
distributed the minutes more widely to enable underwriters to
better understand the analytical basis for MRC loan approval
decisions and to use that learning to improve their own
underwriting. On November 1, 1993, the mortgage company invested
six senior underwriters with the MRC's approval authority so that
they could work with their underwriting colleagues to ensure that
all avenues for potential approval are exhausted at the initial
underwriting stage. In addition, on November 23, 1993, the lender
issued a memorandum informing its underwriters of the major
reasons the MRC has approved loans and directing them to employ
these analytical tools themselves.
- Mortgage Customer Assistance Program
In early 1993, the mortgage company created the Shawmut Mortgage
Customer Assistance ("SMCA") program and hired an African-American with extensive affordable housing experience to serve as
an advocate for minority applicants. Since April 1, 1993, at the
time of application, all minority applicants have received a
letter informing them of the SMCA program and giving them a
telephone number to call for assistance. The letter also
describes the twin goals of the SMCA program: (1) to provide
information and assistance in the loan application process; and
(2) to ensure that every loan application is processed in full
compliance with the lender's equal credit and fair housing
obligations.
- Self-Evaluation
The mortgage company engages in rigorous self-analysis of its
fair lending performance. In late 1992, the Corporate Credit
Review Department conducted a sample file review to assess
whether white and black applicants with similar credit
characteristics were being treated similarly in the underwriting
process. In addition, the lender retained an outside consultant
in late 1992 to conduct a "mystery shopper program" to assess
whether it was treating minority and non-minority applicants
similarly in the pre-application process. The testing was
conducted between February and April 1993.
On October 8, 1993, Shawmut National Corporation's CRA Policy
Committee initiated a comprehensive fair lending compliance
program. Pursuant to this initiative, the mortgage company has
begun the process of reviewing all of its lending policies and
procedures for conformity with its regulatory fair lending
obligations and with the Corporation's Fair Lending Mission
Statement. It has retained a well regarded outside consultant to
assist with this program and has commenced a search for an
experienced Director of Consumer Compliance.
The mortgage company will continue these programs, or similar
programs, along with additional programs that have been
implemented by the lender to serve these goals, during the
duration of this Decree.
Of equal importance to the United States in agreeing to the terms
of this settlement is that the changes the mortgage company made
in November 1992 in its loan processing and underwriting
procedures were the direct result of the lender's forthright
self-evaluation of the differences in the ways it treated
minority and white applicants. In recognition of the mortgage
company's incremental, and ultimately effective, steps to correct
its fair lending deficiencies, the United States has agreed that
it will not be necessary to have this Court impose upon the
mortgage company extensive affirmative procedural practices to
insure compliance with the general injunctive provisions of this
Decree. In further recognition of the self-evaluative and
immediate self-corrective steps that the mortgage company has
taken, the United States has agreed to a compensation amount, as
described in paragraph 7, below, for those injured by the
lender's practices during the period January 1990 through October
1992, that is designed only to make whole those persons who may
have been injured by past discriminatory conduct; the amount
contains no punitive sanctions and is approximately half of the
amount the United States would have insisted upon in the absence
of such corrective actions. The agreed-upon level of compensation
also takes into consideration the reduced costs to the
United States in proving its case.
- RECORD-KEEPING AND REPORTING REQUIREMENTS
- For a three-year period, the mortgage company will retain all
loan application files submitted for home mortgage loans and all
documents and notices relevant to any underwriting decisions,
including Mortgage Review Committee decisions. The lender will
also retain all records relating to its fair lending compliance
program, including documents concerning its employee training on
fair lending, mortgage production, employee recruitment, and
compliance activities, as they relate to black and Hispanic
borrowers and potential borrowers.
- To fairly monitor the mortgage company's processing and
evaluation of home mortgage loan applicants under this Consent
Decree, the United States may, from time to time, seek and be
provided access to individual home mortgage loan application
files and related records such as the minutes of the lender's
Mortgage Review Committees, provided such requests are reasonable
and are made upon reasonable notice and in writing to the
mortgage company. The United States will keep all records and
information relating to loan applicants confidential to protect
the applicants, privacy rights. If the United States identifies
any concerns with respect to the mortgage company's compliance
with this Consent Decree in its treatment of home mortgage loan
applicants, it will promptly notify the lender of its concerns
and seek to resolve them.
- The mortgage company will report its progress under this
Consent Decree to the Civil Rights Division of the United States
Department of Justice on a semi-annual basis for the first year,
and annually thereafter for the next two years. All reports will
be submitted to the United States within 30 days after the close
of each reporting period and will include the following
information:
- A general report on the mortgage company's performance, in
marketing and outreach to potential borrowers, and in its
processing and underwriting of black and Hispanic applicants for
mortgage credit. This report should discuss, among other things,
the lender's advertising, marketing, mortgage production,
employee recruitment, compliance activities, underwriting, and
Mortgage Review Committee activities, as they relate to black and
Hispanic borrowers and potential borrowers; and
- A report in machine-readable form from its automated loan
tracking system for all home mortgage loan applicants. The
variables to be included in the reports will be agreed upon by
the parties prior to the first reporting period.
- Copies of all notices, correspondence, reports, or documents
required to be provided by one party to the other under this
Consent Decree will be mailed to the following addresses:
For the United States:
Chief, Housing and Civil Enforcement Section
Civil Rights Division
U.S. Department of Justice
P.O. Box 65998
Washington, DC 20035
For the Shawmut Mortgage Company
Director of Compliance
433 South Main Street
West Hartford, CN 06110
- The mortgage company will place Nine Hundred and Sixty
Thousand Dollars ($960,000.00) into a Shawmut Mortgage Company
Consent Decree Compensation Fund to be administered at the
direction of the United States. The purpose of this fund is to
compensate those who were injured by the mortgage company's
practices during the period January 1990 through October 1992. It
is agreed and understood between the patties that $160,000 of the
compensation fund is to be paid by the mortgage company in lieu
of civil money penalties that would have been payable, if
assessed, to the United States Treasury pursuant to Section 5(m)
(1) (A) of the Federal Trade Commission Act, Section 704 (c) of
the Equal Credit Opportunity Act, and Regulation B. The
compensation fund will be administered as follows:
- the lender's personnel will review all loan files of rejected
black and Hispanic applicants under the review standards that
have been used by the Mortgage Review Committee since October
1992;
- the mortgage company will then compile a list of those
applicants who would have been accepted or made counteroffers,
and state its reasons for affirming all loan denials for black
and Hispanic applicants during the period January 1990 through
October 1992; and
- the United States will then review the files and the reasons
for continued denial of those not identified as eligible for
compensation and will have the right to add any whom it believes
should be included as payees. The United States will also review
the circumstances surrounding the denials of the payees'
applications, and will identify any persons who were unusually
damaged by the denial and who may, therefore, be entitled to
additional compensation (not to exceed a total of $15,000 for any
individual).
- The mortgage company will then notify all payees by registered
mail, return receipt requested, of the nature of the settlement
and of their right to receive compensation, and will include a
copy of the Consent Decree with the notice. It will notify the
United States of the names and last known addresses of all payees
from whom no return receipt has been received within
thirty days of the mailing of the notice, and the United States
will have an additional thirty days to locate these payees and
provide them with a copy of the notice. The notice will include
a requirement that each payee respond within 60 days of receipt
of the notice and execute a waiver, in the form set forth in
attachment 2, of any additional rights to proceed against the
mortgage company on claims arising from the same facts. Each
payee will receive $10,000, except where special circumstances
warrant a greater payment (as described in paragraph 7) or a lower amount (if the United States agrees that any lower payments
are warranted by the circumstances of the denials). The mortgage
company will issue checks to each payee for the designated
amount.
- The disposition of any amount remaining in the fund after all
payees have been compensated will be determined by the United
States. In the event that the fund is insufficient to compensate
all payees according to the provisions of this decree, the
mortgage company will supplement the fund to provide the required
compensation.
- The terms of this Consent Decree will bind any successor in
interest to the Shawmut Mortgage Company as to employees,
branches, and offices now under the control of the mortgage
company, branches subsequently acquired by the mortgage company,
and any branches into which the mortgage company branches are
consolidated. It is assumed by the parties that any successor in
interest will voluntarily implement the provisions of this
Consent Decree in all successor-in-interest branches located in
the lender's current service area, but if any such successor in
interest declines to voluntarily implement the provisions of the
Decree in all such branches and offices, it shall present to the
United States its proposed plan of operation. If the United
States concludes that the proposed plan of operation will hinder
the attainment of the goals of this Consent Decree it shall
present such concerns to the successor in interest and attempt to
resolve the differences voluntarily. Any differences that cannot
be resolved by the parties may be presented to the court for
resolution.
- This Consent Decree may be modified by written agreement of
the defendant, the Department of Justice, and the Federal Trade
Commission.
- RETENTION OF JURISDICTION
- For a three-year period, this Court will retain jurisdiction
for purposes of enforcing all provisions of this Consent Decree.
The parties to the Decree will endeavor in good faith to resolve
informally any differences regarding interpretation and
compliance with this Consent Decree prior to bringing such
matters to the court for resolution. Thereafter, the court will
retain jurisdiction for an additional seven-year period solely
for the purpose of enforcing the general injunctive provision.
- Each party to this litigation will bear its own costs.
It is so ORDERED, ADJUDGED, and DECREED this ________ day of
1993.
UNITED STATES DISTRICT JUDGE
The undersigned apply for consent to the entry of this Order:
For the United States:
JANET RENO
ATTORNEY GENERAL
JAMES P. TURNER
ACTING ASSISTANT ATTORNEY GENERAL
PAUL F. HANCOCK
ALEXANDER C. ROSS
JEFFERY M. SENGER
Attorneys, Housing and Civil Enforcement Section
Civil Rights Division
U.S. Department of Justice
P.O. Box 65998
Washington, DC 20035-5998
(202) 514-4713
CHRISTOPHER F. DRONEY
UNITED STATES ATTORNEY
JOHN B. HUGHES
Chief, Civil Division
450 Main Street, Room 328
Hartford, CT 06103
(203) 240-3270
DAVID MEDINE
Associate Director
PEGGY L. TWOHIG
Assistant Director
SANDRA M. WILMORE
Attorney
Division of Credit Practices
Federal Trade Commission
Washington, D.C. 20580
(202) 326-3210
For the Shawmut Mortgage Company:
ROBERT S. BENNETT
WILLIAM J. SWEET, JR.
ANDREW L. SANDLER
Skadden, Arps, Slate Meagher & Flom
1440 New York Avenue, N.W.
Washington, D.C. 20005
(202) 371-7103
Attorneys for the Shawmut Mortgage Company
