As prepared for delivery
Good morning, Chairman Leahy, Ranking Member Grassley, and distinguished members of the committee. Thank you for inviting me to testify today about the critical work the Civil Rights Division is doing to combat fair lending discrimination. I am proud to be joined today by my good friend Senator Cardin, and I thank him for his dedicated leadership on this issue.
The housing crisis has touched so many communities across the country. Communities of color, in particular African Americans and Latinos, have been hit particularly hard. In my work in Maryland and in my work across America, I have seen all too frequently that African Americans and Latinos seeking equal credit opportunity were judged by the color of their skin rather than the content of their creditworthiness. For all too many years, accountability was lacking and enforcement was spotty at best.
That is why, in the wake of the housing and foreclosure crisis, the federal government, under the leadership of President Obama, has responded forcefully. To address discrimination in lending, Attorney General Holder created a Fair Lending Unit in the Civil Rights Division’s Housing and Civil Enforcement Section.
Since the establishment of the Fair lending Unit, thanks to the committed career professionals in the division, we have brought record numbers of enforcement actions. In the approximately 24 months since the unit was established, the division filed or resolved 16 lending matters. By way of contrast, from 1993 to 2008, the department filed or resolved 37 lending matters, an average of a little more than two cases per year.
The division produced unprecedented results in 2011 alone. We filed a record eight-lending related federal law suits, and obtained eight settlements providing for more than $350 million in relief to the victims of illegal lending practices. This includes our settlement with Countrywide Financial Corporation, the largest lending discrimination case ever brought by the Department of Justice, as well as a record settlement under the Servicemembers Civil Relief Act (SCRA).
No one case can rectify the multitude of unlawful practices in the housing and lending market that contributed to the nationwide housing and foreclosure crisis. But, as the 2011 enforcement record illustrates, the Division’s Fair Lending Unit uses every possible tool to address the range of abuses seen in the market, in both mortgage and non-mortgage lending.
Collaboration is critical to all we have accomplished. Much of our fair lending enforcement is done in conjunction with the banking regulatory agencies and the President’s Financial Fraud Enforcement Task Force, particularly its Nondiscrimination Working Group, which I co-chair.
In addition, from 2009-2011, the bank regulatory agencies, the FTC and HUD referred a total of 109 matters involving a potential pattern or practice of lending discrimination to the Justice Department. Fifty-five of the 109 matters involved race or national origin discrimination, a combined total that is far higher than the 30 race and national origin discrimination referrals the division received from 2001-2008. Our enforcement efforts have been enhanced by the Consumer Financial Protection Bureau, a new and critical partner.
We have also worked closely with state attorneys general, as evidenced by the Countrywide case that was done in coordination with the Illinois Attorney General’s office.
Our $335 million settlement against Countrywide is the largest fair housing discrimination settlement in U.S. history – more than 50 times larger than the division’s next largest fair lending settlement. Our complaint against Countrywide alleges that its systemic discrimination over a four year period violated the Equal Credit Opportunity Act and the Fair Housing Act, and impacted more than 200,000 African-American and Latino families.
At the core of our complaint is a simple story. If you were African-American or Latino, you likely paid more for a Countrywide loan than a similarly-qualified white borrower simply because of your skin color. For instance, a qualified nonsubprime customer in Chicago seeking a $200,000 loan paid an average of about $1100 more in unnecessary, unjustified fees if she were Latino, and about $1235 more if African American, than the average amount charged to a similarly situated non-minority.
In addition, if you were African American or Latino, you were far more likely to be steered into an expensive and risky subprime loan than a similarly-situated white borrower. There are thousands of qualified African Americans and Latinos who should have been placed in prime loans, but were denied equal credit opportunity. African Americans and Latinos who were steered paid on average tens of thousands more for their loans, which had other corrosive features such as prepayment penalties, and these loans carried an increased risk of default and foreclosure. One of the insidious aspects of these practices is African American and Latino borrowers who walked into Countrywide’s door had no idea they could have gotten a better deal. That is discrimination with a smile.
We reviewed data on over 2.5 million loans, including data loan terms and information on each borrower’s creditworthiness. We are locating victims to make determinations on the amount of damages they receive.
In addition to the Countrywide case, we have brought four other pattern or practice pricing discrimination cases since the Fair Lending Unit was established. These cases include multi-million dollar settlements with AIG Federal Savings Bank and PrimeLending, as well as the first unsecured consumer lending pricing case brought by the division in at least a decade.
We settled two redlining cases in 2011, one against Citizens Bank of Flint, Mich., and the other against Midwest Bankcentre of St. Louis. Citizens agreed to, among other things, invest $3.6 million in Wayne County and in the City of Detroit. Midwest agreed to, among other things, invest $1.45 million in African-American neighborhoods in St. Louis.
Our settlements seek to expand opportunities for minority communities and individuals to access credit in areas where a lender had previously denied such services. However, our settlements never require a lender to make a loan to unqualified borrowers. The department’s settlement agreements repeatedly refer to the extension of credit to “qualified applicants” only. Further, the department makes clear that no provision in any redlining settlement agreement, including any special loan program or loan subsidy fund commitment, requires the bank to make any unsafe or unsound loan.
Last year, we also brought our first Fair Housing Act case alleging discrimination against women on paid maternity leave in mortgage insurance against the nation’s largest mortgage insurance company and two of its underwriters. The case is currently in litigation.
In addition to our traditional fair lending work, we have stepped up efforts to protect the rights of our service-men and -women through enforcement of the SCRA.
We have moved aggressively to protect servicemembers whose homes were foreclosed on in violation of that law. As a result of our settlements with 6 national servicers, the vast majority of all foreclosures against servicemembers will be under court ordered review.
We announced two multi-million dollar settlements under SCRA last year, including the department’s largest SCRA settlement ever – a more than $20 million settlement with Bank of America.
Based on the template of these SCRA settlements, as part of the department’s $25 billion federal-state mortgage servicing agreement, the nation’s five largest servicers agreed to compensate each servicemember a minimum of $116,785 plus any lost equity for any wrongful foreclosure. This compensation for SCRA violations is in addition to the $25 billion settlement.
I mentioned our litigation activities. We have an active program of education, outreach and prevention. We are reaching out to those within the industry - to join with us in ensuring a fair lending environment for all. We know that people in the industry are working very hard to promote fair lending and to ensure that their institutions comply with the law. That is why I and my colleagues in the Civil Rights Division regularly speak at conferences, hold roundtables and participate in webinars to inform industry about our enforcement priorities and cases. For example, in November DOJ and the other federal fair lending enforcement agencies hosted a webinar for lenders that had more than 4,000 participants.
The best policing is often policing that comes from within. So many of the discriminatory practices we observe are preventable if the lender had proper internal controls. That work is vital to ensuring fair and equal treatment for borrowers. And the success of thoughtful and comprehensive compliance work and attention to fair lending is reflected in the fact that the vast majority of lenders are not violating the law.
Common-sense consumer protection, including enforcement of our fair lending laws and compliance work by lenders, and promoting a sound climate for lending go hand in hand and are inextricably intertwined.
In the coming year, we will continue our efforts to ensure that those harmed by discriminatory conduct during the mortgage boom get compensation. We will also investigate and bring enforcement actions to confront emerging discriminatory practices in the credit market. We will continue to aggressively enforce the law to protect the rights of servicemembers and all who face discrimination to ensure fair and equal access to credit for all as the law requires.
Thank you. I look forward to answering any questions.