Reference Guide to Regulatory Compliance Fair Housing Act 42 USC Ch 45 3601 through 3619 Topics Coverage Requirements Enforcement Practical Application Self-Study Questions The Fair Housing Act was enacted as a part of the Civil Rights Act of 1968. When the act was passed, it prohibited discrimination based on race, color, religion, sex, and national origin in all phases of the housing industry. In 1988 the act was amended to make discrimination based on the familial status or handicap of a person illegal. The federal regulatory agencies have published regulations to implement the provisions of the Fair Housing Act that are applicable to the financial services industry. These regulations primarily are recordkeeping requirements to ensure that the agencies can monitor institutions and determine whether illegal discrimination is occurring in housing lending practices. I. Coverage 42 USC Ch 45 3604 and 3605 A. The Fair Housing Act applies to any person or entity whose business includes engaging in real estate-related transactions, such as making or purchasing loans, or the selling, brokering, or appraising of residential real property. Therefore, all financial institutions are covered by the prohibitions against discrimination in housing-related credit B. All financial institutions are covered by the advertising requirements of the Fair Housing Act C. Recordkeeping requirements 1. State nonmember banks are governed by the Federal Deposit Insurance Corporation (FDIC) Fair Housing Regulation found in 12 CFR 338 2. National banks are covered by the Office of the Comptroller of the Currency (OCC) Fair Housing Home Loan Data System 12 CFR 27 3. Savings associations are governed by the OCC s Nondiscrimination Requirements found in 12 CFR 128 II. Requirements A. Institutions may not discriminate in any phase of a housing-related lending transaction against persons because of their race, religion, color, national origin, sex (gender), familial status (having children under the age of 18 living at home), or handicap B. Advertising FRB Board Order on Fair Housing Advertising and Poster Requirements dated March 20, 1989; FDIC Regulation 12 CFR 338.3 and 338.4; OCC 12 CFR 128.4, 128.5, and 128.9. The OCC found it unnecessary to write a separate regulation for national banks. 1. Advertisement is broadly interpreted to include statement-stuffers, lobby brochures, posters, and so forth 2. The Fair Housing logo must appear in all written advertisements for real estate lending 158 American Bankers Association
3. All oral advertisements for real estate lending must contain a statement of nondiscrimination (for example, Equal Housing Lender ) 4. No advertising may contain any words, symbols, models or other forms of communication that express, imply, or suggest a discriminatory preference or policy of exclusion 5. The Fair Housing poster (or Equal Housing Lender poster) must be displayed in the institution s lobby where deposits are taken or loans are made. C. Other practices 1. Redlining Federal courts and regulatory agencies have determined that the Fair Housing Act prohibits the practice of redlining. Redlining occurs when a lender provides unequal access to credit, or unequal terms of credit, because of the race, color, national origin, or other prohibited characteristics of the residents of the area in which the credit seeker resides or will reside or in which the residential property to be mortgaged is located. 2. Appraisals 12 CFR 128.2a; FIL 94-12 Appraisal practices may be potentially racially biased and therefore may cause equal opportunity problems for a lender a. In the cost approach to value, racial bias may be reflected in unsupported adjustments for functional and economic obsolescence. Lenders should not assume that, because a home or neighborhood is over a certain age, large adjustments are appropriate. b. In the comparable sales approach to value, racial bias may cause an appraiser to select inappropriate comparables or make inappropriate adjustments 3. Savings association underwriting standards 12 CFR 128.2a a. All savings associations must have clearly written, nondiscriminatory loan underwriting standards that are available to the public on request at each office b. All underwriting standards and business practices that implement them must be reviewed annually to ensure equal opportunity in lending 4. Savings association application requirements 12 CFR 128.3 a. No savings association may discourage or refuse to allow, receive, consider, or process any application, request, or inquiry on any prohibited basis b. This rule applies to any person who i. Makes an application for a loan or other service Requests forms or papers to be used to make an application for a loan or service i Inquires about the availability of any loan or service c. Associations must inform each inquirer of his or her rights to file a written loan application and receive a copy of the association s underwriting standards 5. Racial Steering: the act of deliberately guiding loan applicants or potential purchasers toward or away from certain types of loans or geographic areas because of race. American Bankers Association 159
Reference Guide to Regulatory Compliance Topics Coverage Requirements Enforcement Practical Application Self-Study Questions D. Monitoring and recordkeeping National banks subject to the Home Mortgage Disclosure Act (HMDA) 12 CFR 27 (a) (1) 1. Must update the Home Mortgage Disclosure Act Loan/Application Register (HMDA LAR) within 30 business days after the end of each calendar quarter for applications submitted during the quarter 2. For denied applications, the bank must note the reason for denial E. Monitoring and recordkeeping National banks not subject to HMDA 12 CFR 27.3(a)(2) 1. A national bank, not subject to HMDA, that received at least 50 or more home loan applications during the previous calendar year may choose either of two recordkeeping systems a. Maintain the records required of banks subject to HMDA, or b. For the categories purchase, construction-permanent, and refinance, record the following home loan information for each decision center of the bank on the Fair Housing Home Loan Data System Logsheet: i. Number of applications received Number of loans closed i Number of loans denied iv. Number of loans withdrawn by the applicant 2. Home loan applications a. Include all applications and loans for purchase, permanent financing for construction, or refinancing of residential real property to be used for the consumer s principal dwelling b. Do not include home improvement loans, loans to purchase vacation homes, interim construction loans, loans secured by mobile homes that are not permanently affixed to the real property, loans secured by real estate but made for other purposes, or loans to purchase vacant lots 3. Timing and coverage a. Must update the information within 30 calendar days of the end of each quarter b. A bank exempt from coverage because it received less than 50 loan applications, will be covered by this requirement for the next month following any quarter in which the bank receives an average of more than four home loan applications per month. (The bank may discontinue keeping the monthly information following two consecutive quarters in which the average monthly volume drops to four or fewer home loan applications.) F. Home loan application requirements for national banks 1. Coverage a. All applications and loans for purchase, permanent financing for construction, or refinancing of residential real property to be used for the consumer s principal dwelling b. Does not include home improvement loans, loans to purchase vacation homes, interim construction loans, loans secured by mobile homes that are not permanently affixed to the real property, loans secured by real estate but made for other purposes, or loans to purchase vacant lots 160 American Bankers Association
2. Requirements 12 CFR 27.3(b)(1) a. National banks must attempt to obtain the following information on completed home loan applications: i. Loan amount requested Interest rate requested i Number of months requested to maturity iv. Location of property, complete address v. Number of residential units vi. Year property was built v Purpose of the loan vi Name and present address of applicant ix. Age of applicant x. Marital status (using terms married, unmarried, or separated) xi. Number of years employed in present profession x Years on present job xi Gross total monthly income, including base salary, wages, overtime, bonuses, commissions, dividends, interest, rental income, retirement or disability income, income from part-time employment (including income from alimony, child-support, and separate maintenance after disclosing to applicant that it need not be listed unless applicant wants it to be considered) xiv. Proposed monthly housing payment (may include taxes, insurance, monthly assessments, and utilities if the bank consistently uses these amounts for computing housing costs) xv. Purchase price xvi. Applicant s total monthly payments on all outstanding liabilities (including installment debts, real estate loans, and any alimony, child support, or separate maintenance payments) xv Net worth (applicant s total assets, including cash, stocks, bonds, cash value of life insurance, real estate, net worth of business owned, automobile, furniture, personal property, and so forth, minus total liabilities, including installment debt, real estate debt, automobile loans, and so forth) xvi Date of application xix. Sex of applicant xx. Race or national origin of applicant b. Disclosures 12 CFR 27.3(b)(2) i. Must disclose to applicant that the information on sex and race/national origin is requested by the federal government for monitoring purposes May not discriminate on the basis of the information or on the fact that the applicant chooses not to provide it i If the applicant does not provide the information on race/national origin and sex, the lender must visually observe the applicant and note the race and sex iv. Use of the Federal Home Loan Mortgage Corporation/Federal National Mortgage Association (FHLMC/FNMA) form ( Information for Government Monitoring Purposes )will constitute compliance with the monitoring information American Bankers Association 161
Reference Guide to Regulatory Compliance Topics Coverage Requirements Enforcement Practical Application Self-Study Questions c. Bank must keep the following information in its home loan files 12 CFR 27.3(c): i. Appraised value (if appraisal was obtained) Census tract number, if property is in a standard metropolitan statistical area (SMSA) where the bank has an office (if appraisal was obtained) i Information on the disposition of the application, including whether the application was withdrawn before terms were offered, withdrawn after terms were offered, denied, or terms offered and accepted iv. Any additional information used by the bank in determining whether or not to extend credit (including credit reports, federal tax forms, appraisals, and so forth) d. If final terms were offered, also include the following in the file: i. Loan amount Whether private mortgage insurance is required and, if so, the terms of the insurance i Whether a deposit balance is required and, if so, the amount iv. Note interest rate v. Number of months to maturity vi. Points v Commitment date vi Type of mortgage (standard fixed payment, variable rate, graduated payment, rollover, other) ix. Name of bank office where application was submitted e. If the application is denied, maintain the following in the file: Copy of the Equal Credit Opportunity Act (ECOA) notice and statement of credit denial G. Other national bank recordkeeping requirements 12 CFR 27.4 (a) 1. Inquiry/Application Log a. Coverage i. The OCC may require the log if there is reason to believe the bank is participating in illegal discriminatory practices When requiring a bank to keep a log, the OCC will specify the location where the information should be obtained, the length of time it must be maintained, the frequency of submission to OCC, and the reason for imposing the requirement i If required to keep a log, the bank must keep information on all inquiries and applications for a home loan or for a governmentinsured loan b. Requirements Must keep the following information on the form provided in Appendix III to the OCC regulation: i. Date of application or inquiry Type of loan (purchase, construction-permanent, refinance) i Government-insured and type of insurance iv. Whether the entry is an application or inquiry v. Case identification to identify the loan file vi. Race/national origin 162 American Bankers Association
v Location of property (complete street address and census tract if located in a SMSA in which the bank has an office) 2. Statistical Analysis prior to OCC Examination a. Bank will have 30 calendar days after receipt to submit the completed Home Loan Data Submission Forms i. OCC will request specific records Number of records requested will not exceed 250 per decision center or 2,000 per bank unless there is reason to believe the bank has been illegally discriminating b. Purpose is statistical analysis on home loans c. Requirements i. Complete and submit Home Loan Data Submission Forms for the specified records to the OCC within 30 days after receiving notification Form is in Appendix IV to OCC regulation H. Record-retention requirements National banks 12 CFR 27.5 1. Must keep all application information for 25 months from the date the applicant is notified of the action taken 2. OCC may extend this record retention requirement I. State nonmember banks 12 CFR 338 Subpart B 1. State nonmember banks subject to HMDA must comply with Regulation C 2. All state nonmember banks that receive applications for the purchase or refinance of a dwelling to be occupied by the applicant as a principal dwelling must comply with Regulation B and request the applicant s a. Ethnicity b. Sex c. Marital status d. Age III. Enforcement 42 USC 3613 and 3614 A. Civil liability 1. Actual damages 2. Punitive damages as awarded by the court 3. Court costs and attorney s fees 4. If action brought by U.S. Attorney, may bring penalty of up to $50,000 for first violation and $100,000 for subsequent ones B. FIRREA penalties 1. Penalties up to $7,500 per day for violations of laws and regulations 2. Penalties up to $37,500 per day if violations or unsafe or unsound practices are engaged in recklessly or are part of a pattern of misconduct that causes more than a minimal loss to the bank or any pecuniary gain to the parties involved 3. Penalties up to $1,425,000 per day against persons who knowingly commit a violation and knowingly or recklessly cause a substantial loss to the bank or a substantial benefit to the party C. Criminal liability 1. If no bodily injury in violation, can be fined up to $1,000 or imprisoned for up to one year American Bankers Association 163
Reference Guide to Regulatory Compliance Topics Coverage Requirements Enforcement Practical Application Self-Study Questions 2. If bodily injury, can be fined up to $10,000 and imprisoned for not more than 10 years 3. If death results, can be imprisoned for life D. Administrative enforcement 1. The Department of Housing and Urban Development (HUD) can investigate complaints of discrimination 2. Regulatory agencies have uniform enforcement policy for compliance with the Fair Housing Act 164 American Bankers Association
Practical Application Fair Housing Poster The Fair Housing Poster must be displayed in the place where the bank accepts applications for home-related loans or where deposits are made. American Bankers Association 165
Reference Guide to Regulatory Compliance Topics Coverage Requirements Enforcement Practical Application Self-Study Questions Fair Housing Act Questions 1. First National Bank owns several pieces of real estate obtained through foreclosures. Two of these are homes that the bank would like to market and sell within the community. The bank will also provide financing for these homes. In addition, the bank owns an apartment complex that it is managing until it is sold. In relation to these properties, which of the following issues is NOT a Fair Housing Act issue? a. Discrimination based on familial status in renting apartments b. Accessibility of the apartment complex to handicapped persons c. Whether potential buyers of the houses are being discouraged from looking at the houses because of race or ethnic background d. Affordability of the apartments relative to the community immediately around the complex 2. In state bank advertisements, on what must Fair Housing logos be placed? a. Bank communications b. Bank advertising c. Advertising for home improvement loans d. Bank lobby signs 3. First State Bank, a state nonmember bank, is auditing its recordkeeping procedures for compliance with the FDIC Fair Housing regulations. Which loan should be reviewed? a. A loan to purchase a mobile home to be used as a vacation home b. A home equity line of credit c. A loan to purchase vacant land for the construction of a residence d. A home purchase loan 4. Which of the following loans is NOT subject to Fair Housing monitoring requirements for housing-related loans made by a national bank located outside a metropolitan statistical area (MSA)? a. A loan to purchase a mobile home b. A loan to provide permanent financing for the construction of a residence c. A loan to purchase a residence d. The refinancing of a home purchase loan 166 American Bankers Association
5. First National Bank, with assets of $60 million, is located in a large urban area (which has been designated as an MSA). Which of the following is true of the bank s fair housing recordkeeping requirements? a. It must keep an Inquiry/Application Log of all home loans and home improvement loans. b. It does not have to keep any records unless it had at least 50 applications for home purchase loans during the previous calendar year. c. It must keep monthly information on all home loan applications (including purchase, permanent financing, and refinancing) regarding the number of applications received, the number denied, the number withdrawn, and the number of loans closed. d. It must keep its HMDA LAR updated quarterly. 6. Which of the following national banks must keep an Inquiry/Application Log? a. A bank that had 50 or more home loan applications in the previous year b. A bank that has $50 million or more in assets c. A bank that is located in an MSA d. A bank that has been requested by the OCC to keep such a log because of complaints that its lending practices may be discriminatory 7. First National Bank is located outside an MSA. It received 120 home loan applications last year. Which statement best describes the bank s Fair Housing recordkeeping requirements? a. It may either keep the Home Loan Data System records, or it may keep the HMDA LAR information. b. It must complete up to 2,000 Home Loan Data Submission Forms per bank or 250 per decision center and submit them to the OCC within 30 days. c. It must keep a HMDA LAR. d. It must keep the Home Loan Data System records. 8. Which of the following is NOT a prohibited basis of discrimination under the federal Fair Housing Act? a. Race b. Disability c. Religion d. Sexual orientation Answers to the self-study questions are at the end of Section II. American Bankers Association 167