Fairway Mortgage to pay $1.9 million in redlining case

Fairway Independent Mortgage Corporation has agreed to a $1.9 million penalty and $7 million in loan subsidies following accusations that it avoided lending in Black neighborhoods in Birmingham, Ala. However, the company has denied any wrongdoing.

 The settlement comes after the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) accused the company of redlining, a discriminatory practice where lenders avoid offering loans in communities based on racial or ethnic backgrounds.

The CFPB and DOJ allege that from 2018 to 2022, Fairway discouraged mortgage applications in predominantly Black areas, focusing its marketing efforts and office locations in majority-white neighborhoods.

While the lender operated several loan offices in Birmingham, they were all in majority-white areas, and less than 3% of its direct mail advertising was sent to majority-Black neighborhoods between 2018 and 2020. As a result, Fairway’s loan application rate in Black neighborhoods was just 3.7% during this period, while its peer lenders served these areas at more than three times that rate.

“The CFPB and DOJ are holding Fairway accountable for redlining Black neighborhoods,” said CFPB director Rohit Chopra. “Fairway’s unlawful redlining discouraged families from seeking loans for homes in Birmingham’s Black neighborhoods.”

Read more: How to root out discrimination in the mortgage industry

Despite agreeing to the settlement, Fairway firmly denied that it engaged in discriminatory lending practices. In a statement, the company expressed frustration with how the government’s analysis was based on quotas rather than evidence of actual discrimination.

“The complaint significantly mischaracterizes the matter at issue and appears to be intentionally inflammatory in nature. For one, the complaint characterizes Fairway’s actions as willful and reckless, a claim that was mutually rejected by the parties prior to settlement,” the statement read. “In addition, the complaint characterizes Fairway’s actions as willful and intentional, despite the government agencies’ failure to identify any evidence to support such a claim. Fairway is disappointed by these statements in the complaint, which suggest bad faith by the part of the government agencies.”

The company claimed it approved more loans in majority-Black census tracts than any other non-bank lender in the region. Fairway said the government failed to consider its lending activity for residents of majority-Black neighborhoods who purchased homes in other parts of the Birmingham metropolitan area.

“The government agencies also refused to consider Fairway’s lending performance among residents of majority-Black census tracts who may have chosen properties outside of their neighborhoods and elsewhere in the Birmingham MSA, which indicates the government’s preference for furthering racial segregation,” Fairway said.

While the company remained firm that the allegations are unfounded, the settlement will require Fairway to take several steps to address the issue of limited credit access in Black communities.

As part of the proposed order, the company will set up a $7 million loan subsidy program aimed at making mortgages more affordable in majority-Black neighborhoods. This will include offering lower interest rates, down payment assistance, and other financial aid to help residents in these areas purchase or refinance homes.

Additionally, Fairway will open a new office in a majority-Black neighborhood and spend $500,000 on outreach to promote credit access in the communities it was accused of ignoring.

“To resolve the matter and curb the further expenditure of resources, Fairway determined that a settlement with the Bureau and the DOJ would be the most appropriate solution,” the lender said.

“In part, the settlement allows Fairway the opportunity to redirect financial resources to majority-Black neighborhoods via loan subsidies, consumer financial education, and community development. Fairway hopes that these efforts will further increase lending opportunities for those seeking to purchase properties in majority-Black census tracts of the Birmingham MSA.”

However, Fairway noted that the program only applies to properties located within those census tracts.

“The settlement does not authorize the agreed-upon loan subsidy to be offered to residents of majority-Black census tracts unless they remain in a property located in such tracts,” the statement said.

The CFPB and DOJ’s action against Fairway is part of the broader Combating Redlining Initiative, which has secured over $150 million in relief for communities of color nationwide over the last three years.

Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights division said the settlement will help bridge the gap in credit access that has long existed in Birmingham’s Black neighborhoods.

“With more than $150 million in total relief secured in three short years, our Combating Redlining Initiative is generating real economic opportunity for communities of color while sending a strong message to mortgage lenders, no matter their business model, that discriminatory lending will not be tolerated in America,” Clarke said.

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