By: Richard Zombeck
November 15, 2013
Discrimination and civil rights can be a pretty murky topic and not as cut and dry or "black and white" as one might think
It's easy enough to think of these topics in terms of blatant acts, such as requiring someone to sit at the back of the bus, drink from a separate water fountain, not being allowed to sit at food counter, or being denied access to services based on the color of their skin, gender, or sexual orientation. Actions like these, for the most part and hopefully, are a thing of the past.
Most recently we've been watching as the Supreme Court took a swipe at the Voting Rights Act of 1962. A move that Justice Ruth Bader Ginsburg wrote in her dissent, is like "throwing away your umbrella in a rainstorm because you are not getting wet."
In Washington, pro-gay-rights members in the Senate frantically tried to find enough votes to block a Republican filibuster of a bill that would ban employment discrimination on the basis of sexual preference. They found the necessary sixty, but the bill, the Employment Non-Discrimination Act, has been weighed down with a ridiculous religious exemption, and most likely be dead on arrival in the GOP and Tea Party controlled House.
Meanwhile, "West Point hosted its third same-sex marriage [earlier this month]. Two male graduates of the military academy tied the knot at the Cadet Chapel."
So, discrimination is alive and well in the minds of some Americans. Maybe it's not as blatant as was once acceptable, or commonplace, but covert and implicit. Remember the story about Oprah in Switzerland, being told that a particular handbag was too expensive?
I go into a store and say to the woman, "Excuse me, may I see that bag over your head?" and she says to me "No, it's too expensive. "Winfrey says she asked again to see the bag -- a $38,000 crocodile skin number by Tom Ford -- and the woman again refused, saying, "No no no, you don't want to see that one, you want to see this one, because that one will cost too much and you will not be able to afford that.
How about something closer to home that you probably didn't hear about because it wasn't Oprah.
How about a Haitian woman with two kids in tow looking for a house in a nice American suburb being asked by a realtor if she had someone paying for those kids? How about the same realtor asking her if she was aware that she was looking in "a nice neighborhood" several times in the course of the conversation?
That really happened according to Patrick Coleman of the Diligence Group LLC, a due diligence firm that specializes in providing unbiased, third party, expert witness and consultation services regarding all aspects of mortgage loans, and servicing.
"She's literally a brain surgeon in one of the city's top hospitals and this guy is treating her like she just got off the boat," Coleman says about the incident. "That kind of stuff happens all the time in lending."
Discrimination, civil rights and fair housing violations are common place when it comes to mortgages, servicing and lending - you just have to know where to look.
To get a better understanding of the nuances around how civil rights and the Fair Housing Act come into play with mortgages and lending I spoke with The Diligence Group's Senior Fair Housing & Fair Lending Consultant, Dr. Gary Lacefield.
Lacefield is a Senior Civil Rights Analyst and a former HUD Supervisor of Investigations. Among his long list of achievements, he was awarded HUD's highest achievement award, the HUD Secretary's Certificate of Merit, by Secretary Andrew Cuomo in September 1998 for the investigation, negotiation, and settlement of the six largest civil rights settlements in HUD history, totaling over $10 billion dollars.
We're all familiar with predatory lending. It nearly crippled the world economy in 2008 and everyone started blaming homeowners for being greedy, buying more house than they could afford, and not reading the contract. Even better, many in the GOP blamed the whole thing on a 1977 law called the Community Reinvestment Act.
One could easily argue that nearly all loans made pre-bubble were predatory loans by HUD standards, which is when the borrower lacks the sophistication, experience, and knowledge in lending to understand the terms of the loan, hence the term "least sophisticated debtor." Not a hard argument to make when most mortgage and lending agreements are 300 pages of legal word salad with no punctuation.
Then there are "ghetto loans" sold to "mud people." Yes, "mud people." That's how Wells Fargo loan officers referred to the loans and the African Americans they sold them to.
From the New York Times:
Wells Fargo, Ms. Jacobson said in an interview, saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation's home-owning mania. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages.
The "pushing" claim is always where things get heated. You'll hear the usual tripe from the mortgage industry that no one was forced into these crappy loans, usually with the standard, "Nobody held a gun to their head," argument or "it's all in the contract if they had bothered to read it," as if either of those retorts justifies ruining someone's life and laying their finances to waste. For the latter argument I refer you to the previous comment in this post about 300 pages of word salad. For the "gun to their head" argument I defer to Dr. Lacefield, who puts it this way:
I hear the "gun to the head" statement quite frequently from attorneys representing lenders; and it is true in most cases, that the consumer was not brought in dragging and screaming to apply for the mortgage. However, it should be the lender's responsibilities to not make loans to people that do not have the ability to repay those loans. The lender is preying on the consumer when they place a family in a loan that they did not have the ability to repay. Predatory lending can be directly correlated to discrimination.
Fair housing and civil rights doesn't only apply to brown people though. It applies to everyone. The formula or guidelines were actually rewritten in 1988 to exclude racism as a deciding factor in a complaint - they removed intent in an effort to make sure that everyone is treated fairly - I mean really, there's always someone who hates you no matter who you are.
In respect to mortgages and mods for example, according to Coleman, refusing or discouraging someone from applying for a loan or a loan modification could be seen as discriminatory. Discouragement comes in many forms. From simply being told you shouldn't apply for a loan or a modification to being asked countless times to provide the same document - regardless of whether you're black, white, gay, male, female, elderly, disabled, a veteran, etc.
So, taking into account that a predatory loan is by definition one is which the borrow lacks the sophistication, experience, and knowledge to understand what they were getting into and throw in that the borrower's protected class is tossed in there for good measure, you could be looking at a pretty interesting case. How often have lenders, realtors, or brokers leveraged a potential borrower's status to sell one of those lousy loans? It comes, for example, in the form of cozying up to someone because they're just like you or telling you that they wrote the same type of loan to the couple down the street who, by the way, are just like you. That's generally how people got into loans that they were not qualified to repay and that's important. It's not about "affording" a loan. It's about the ability to repay that loan and that is ultimately the responsibility of the lender and the underwriters - and that carries over to modifications.
This crisis, now in its fifth year, is the result of a complete disregard of the law by lenders for over two decades. Both the Fair Housing Act and Civil Rights Act were designed to protect consumers and homeowners from being trampled in the way they have been repeatedly.
A significant number of borrowers fall under the umbrella of this protection and were harmed in some way by lenders and servicers violating these rights. In a nutshell, if you were granted or even offered a loan or loan modification you did not have the capacity to repay it could be a violation of the Fair Housing Act; if you were told you did not qualify to apply, should not apply, or otherwise discouraged from applying for a loan or modification for any reason it could be a Fair Housing violation; if you believe you are qualified for loans you can repay to keep you in your home but believe you have been improperly denied a loan or modification it could be a Fair Housing violation; if during the course of the loan, from beginning to now you believe you were discriminated against, treated differently, or harmed by your Servicer or Lender it could be a violation of the Fair Housing Act. Get it? It casts a pretty wide net and covers a lot of ground. It might not be the silver bullet that many advocates, attorneys, and homeowners are looking for, but in many cases it gets the job done, and at a federal level.
The Diligence Group and Dr. Gary Lacefield have been leveraging these laws to help keep people in their homes and with affordable terms. "Our goal is to keep people in their homes and to negotiate the terms of the mortgage to how it should have been written in the first place," says Lacefield.
Why aren't more attorneys and homeowners taking this route? As previously mentioned it's murky and abstract and there aren't many attorneys who fully understand and appreciate the concept. Those that do however; find a compelling strategy - one that rarely needs to see the inside of a courtroom.
With litigation, you or an attorney are at the mercy of a wide array of variables: your argument, opposing council's argument, the bank's and the servicer's argument, whether or not the judge is hung over or happy at home, case law, and general interpretation of the law, which as we've seen for the last decade or so, rarely favors the homeowner. When foreclosure actions due to predatory lending are fought from a Civil Rights perspective, the rights and interests of the homeowner who was wronged becomes the focus. It's about fairness and an even playing field. That's all anyone ever wanted.