CFPB, DOJ Flag Fairway Independent For Redlining

Fairway Independent Mortgage Corp. (Fairway) settled yesterday with the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice (DOJ) following allegations from regulators of mortgage lending discrimination in majority-Black neighborhoods in the greater Birmingham, Ala. area.

The CFPB and DOJ allege that Fairway illegally redlined Black neighborhoods, including through its marketing and sales actions, which resulted in consumers’ apprehension from applying for mortgage loans in the Birmingham metropolitan area’s Black neighborhoods.

In addition to Fairway allegedly redlining Black neighborhoods, regulators claim that from 2018 to 2022, only 3.7% of Fairway’s applications were for properties in majority-Black areas, compared to 12.2% for peer lenders. In neighborhoods with 80% or more Black residents, Fairway’s lending rate was less than one-eighth that of its peers.

Awaiting court approval, the settlement requires Fairway to pay a $1.9 million fine to the CFPB’s victims relief fund, provide $7 million for a home loan subsidy program in majority-Black neighborhoods, and contribute at least $1 million to the communities it was accused of redlining.

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

Commented U.S. Attorney General Merrick B. Garland, “This settlement, and the over $150 million in relief the Justice Department has secured for communities across the country through our Combating Redlining Initiative, will help to ensure that future generations of Americans inherit a legacy of home ownership that they too often have been denied. This case is a reminder that redlining is not a relic of the past, and the Justice Department will continue to work urgently to combat lending discrimination wherever it arises and to secure relief for the communities harmed by it.”

Fairway released a lengthy statement on Tuesday evening denying the alleged discriminatory behavior and disputing the government’s methods for identifying discrimination. The company explained that it chose to settle with the CFPB and DOJ to avoid further resource expenditure. The company also revealed that the CFPB’s investigation started in 2021, the first full day after the Biden Administration took office. Fairway claims that the government’s allegations were only provided “to Fairway for the first time only after settlement was reached.”

The statement continued, “Despite a multi-year investigation, which included a referral to the U.S. Department of Justice (DOJ), the government agencies did not identify any evidence of redlining or other discrimination by Fairway. Rather, the government agencies relied on a quota analysis to allege that Fairway was not meeting the needs of residents of majority-Black census tracts, in contravention of the U.S. Supreme Court’s 2023 decisions regarding affirmative action.”

Attorneys across the mortgage industry have voiced concerns that regulators are blurring the line between redlining allegations and demands for lenders to engage in race-based lending, in defiance of the highest court’s June 2023 rejection of race-based admissions policies in higher education. By using what Fairway calls a “quota analysis,” or proportional loan distribution, regulators have been accused of manufacturing perceptions of discriminatory lending, pushing lenders to manufacture their fair lending compliance.

Fairway also added, “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.”

Headquartered in Madison, Wis., Fairway Independent Mortgage Corp. operates in the Birmingham area as MortgageBanc. In 2023, it ranked as the nation’s third-largest mortgage lender, with over 100,000 applications and $24 billion in loans. Fairway is closely held, with Steve Jacobson as the majority owner.