A California-based mortgage lender and its owner have agreed to settle Federal Trade Commission charges that they illegally charged Hispanic consumers higher prices for mortgage loans than non-Hispanic white consumers.

The price disparities could not be explained by the applicants’ credit characteristics or underwriting risk.

"Lenders who allow discretion in pricing loans can’t escape liability simply by burying their heads in the sand. Those lenders must monitor discretionary pricing to ensure that American borrowers are treated equally based on their credit – not their race, national origin, or gender," said FTC Chairman Jon Leibowitz said. "We will continue to be vigilant in enforcing fair lending laws and we’re not going to tolerate discriminatory practices by mortgage lenders."

The FTC filed a complaint in federal court on May 7, 2009, alleging that Golden Empire Mortgage Inc. and Howard D. Kootstra violated the Equal Credit Opportunity Act in pricing mortgage loans. They allegedly gave loan officers and branch managers wide discretion to charge some borrowers, in addition to the risk-based price, "overages" through higher interest rates and higher upfront charges.

They then paid loan officers a percentage of the overages as a commission, according to the complaint, and failed to monitor whether Hispanic consumers were paying higher overages than non-Hispanic white borrowers. 

The settlement order permanently prohibits Golden Empire and Kootstra from discriminating on the basis of national origin in credit transactions, or otherwise failing to comply with the Equal Credit Opportunity Act and its implementing Regulation B.

The order imposes a $5.5 million judgment that will be suspended when $1.5 million has been paid for consumer redress. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.

The order also requires Golden Empire to have a policy that restricts loan originators’ pricing discretion, a fair lending monitoring program, a program to ensure the accuracy and completeness of their data and employee training programs. The pricing policy and fair lending monitoring program set forth in the settlement order are intended to facilitate order enforcement in this case.

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