Redlining 'Patterns' at Hudson City Similar to Other Banks, Feds Say
Two top Justice Department and CFPB officials said this week that they are seeing more instances of redlining and lenders steering minority borrowers into higher-cost loans.September 3
A Federal Reserve decision is expected soon on M&T's long-delayed application to buy Hudson City Bancorp. M&T would still get strategic benefits it sought, but Hudson City has shrunk and become less profitable since it agreed to sell three years ago, and the cost of the deal has risen.September 16
M&T Bank's disclosure that it is in settlement talks with the Justice Department for not complying with underwriting guidelines on FHA loans has renewed fears that more lenders will be targeted.August 7
The Consumer Financial Protection Bureau and the Department of Justice are taking a renewed interest in redlining, the practice of lenders charging more for products or excluding altogether minorities within certain geographic areas and their findings may be surprising.May 8
WASHINGTON — Hudson City Savings Bank's nearly $33 million settlement with the federal government over redlining charges is only the first in what is likely to be a string of similar cases, officials said Thursday.
The Department of Justice and Consumer Financial Protection Bureau said the $34.5 billion-asset bank — involved in a long-running takeover bid by M&T Bank — allegedly built its entire mortgage lending operation around avoiding extending services to black and Hispanic neighborhoods. As part of the settlement, Hudson City must pay $25 million in direct loan subsidies to borrowers in affected communities, plus $2.25 million for community programs and outreach. It is the largest redlining settlement in which a lender must pay direct subsidies.
But in announcing the consent order, officials also made clear that other banks are in their crosshairs.
"Banks and lending institutions should be on notice that the Justice Department continues to focus on discriminatory conduct in mortgage lending and that such conduct will not be tolerated," said Vanita Gupta, assistant attorney general in the DOJ's civil rights division. "We encourage all lenders to proactively identify responsible lending opportunities that exist in predominantly minority neighborhoods within their market areas and to lend fairly to all members of these communities."
Greg Friel, deputy assistant attorney general in the DOJ division, said that the type of behavior the department observed in the Hudson City case has been seen at other institutions.
"We have seen similar patterns in other cases we're investigating," Friel said, but added that he could be no more specific because those investigations are ongoing.
But at the same time, the settlement was seen as a potential positive for M&T's attempt to acquire Hudson City's parent company, Hudson City Bancorp. The two banks agreed to the acquisition back in 2012, but the deal has since run into multiple delays.
Analysts said the enforcement action, which appeared to bring some closure to the government's investigation into alleged redlining at Hudson City, may remove another obstacle to the Federal Reserve Board's finally approving the merger.
"It is getting something out of the way," said Frank Schiraldi, an analyst at Sandler O'Neill. "Anything you can do to clean up any loose ends only makes your case for getting approval for the deal stronger."
The Fed previously said that it would decide whether the companies can merge by Sept. 30 and the banks have set an Oct. 31 deadline to close the deal.
"Everyone is anticipating we are finally bringing this to a close," said David Darst, an analyst at Guggenheim Securities. "But it won't be a surprise to anyone if it doesn't either."
As part of the settlement, Hudson City must also pay a $5.5 million fine. The DOJ and CFPB allege that the Paramus, N.J., bank avoided putting branches and loan officers in predominantly black and Hispanic neighborhoods during a branch expansion initiative from 2004 to 2010. The bank also avoided using mortgage brokers in such neighborhoods, and focused marketing efforts in areas with relatively few black and Hispanic residents, officials said.
Paul Fishman, U.S. Attorney for the District of New Jersey, said that the Justice Department's complaint against Hudson outlined a pattern of advertising and extending credit widely to predominantly white suburban areas around Camden, N.J., but extended virtually no services within the city itself, which is predominantly black and Hispanic. That pattern was also true of Hudson City's operations in the New York City metropolitan area and Connecticut, Fishman said.
"What our investigation showed was that Hudson City took a number of steps to actually legally avoid serving neighborhoods that were predominantly black or Hispanic," Fishman said. "They limited where their branches were, they directed people to offices that were tremendously inconvenient, and they deliberately targeted their marketing and advertising efforts outside of those neighborhoods."
Yet Hudson City, which in the consent order neither admitted nor denied the claims, said in a statement that the bank disagreed with the statistical analysis conducted by the CFPB and DOJ and the conclusions of their investigation.
The bank also said that it had, in fact, held mortgages in the minority communities where redlining was alleged to have occurred and had fully met its Community Reinvestment Act obligations. Yet the bank said it had historically purchased loans originated by other companies.
Hudson City said it agreed to settle the case because the $25 million in subsidies "will help supplement the bank's strong record of serving the needs of all communities within its geographic reach" and that a settlement would allow it "to avoid litigation with these agencies so that it can focus on continuing to provide fair credit services to its customers and working to complete its pending merger with M&T Bank." M&T was also consulted on the complaint, Hudson City said, and agreed with the decision to settle.
CFPB Director Richard Cordray said the order stipulates that Hudson open branches and direct loan subsidies in the neighborhoods where it had previously denied services. The expectation is that the order will jump-start the kind of wealth accumulation that those communities have lacked, Cordray said.
"Without access to affordable credit, neighborhoods deteriorate in the long shadow cast by unfair lending," Cordray said. "Today's action seeks to remove the redline by bringing more than $27 million in mortgage subsidies and outreach programs, along with new bank branches to the communities who should have had access from the beginning."
The DOJ and CFPB have been hinting for months that there would be new enforcement actions coming related to redlining. Steven Rosenbaum, chief of housing and civil enforcement at DOJ's civil rights division, said earlier this month that the agency was working actively on cases where lenders were steering borrowers of color toward higher-cost loans or redlining. The CFPB has also been warning banks for months that it would be aggressively pursuing redlining enforcement actions.
The settlement comes as the Federal Financial Institutions Examination Council said in its annual HMDA report for 2014 that the proportion of loans made to black and Hispanic borrowers that are considered high-cost jumped dramatically over the course of just a year. The HMDA data shows that 25.5% of African-Americans and 28.3% of Hispanics entered into higher-priced mortgage agreements in 2014. Those kinds of loans were made out to only 14.2% of African-American borrowers and 16.8% of Hispanic borrowers the year before.
Jackie Stewart contributed to this article.