Chase Showed “Reckless Disregard” for the Rights of Minority Borrowers

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The DOJ strikes again. JPMorgan Chase is paying $55 million to settle a lawsuit accusing it of discrimination in their mortgage lending practices. (DOJ Fine)

According to the complaint filed by the US Department of Justice, Chase allowed Brokers originating loans for them to charge minority borrowers higher rates than rates charged to white borrowers.

Chase did not directly charge the higher rates. They provided the same pricing for their loans to the Brokers. However, they accepted certain loans from some Brokers that were priced higher. It turned out that these loans were made to minority borrowers.

Is it fair that Chase should be penalized for the actions of the Brokers? In the eyes of the DOJ, it is. They say Chase should have monitored the Broker loans to ensure fair pricing to all borrowers.

This should be a warning to all Wholesale lenders. A lender accepting loans from Brokers needs to have a process to review the loans to ensure the equal and fair treatment of all borrowers.

Loans with inflated rates must be identified and analyzed to ensure fair and accurate pricing. Otherwise, the Wholesale lender will be held liable for any discriminatory lending practices of the Broker.

All lenders need to be carefully monitoring their loan pricing and approval practices for any potential predatory lending practices, by the in-house originators and their Brokers.

The Chase violations were the result of loans originated between 2006 and 2009. So, we’re not quite out of the woods yet on the loan reviews resulting from the crash.

Keep in mind, the Whistleblower rules that allow an employee, Broker or prior employee to report any predatory lending or discriminatory practices to the DOJ for profit.

CFPB and the DOJ are always on the lookout for fair lending violations. With the new HMDA data to be collected in 2018, they will have much more information to help them identify these type violations.

You need to have systems in place, and the proper audit procedures, with action plans, to identify potential problems and to correct them promptly when discovered.

In the case of a Broker’s predatory lending, ignorance is not bliss.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.