Legal Commentary

FTC Alleges Mortgage Lender Discriminated Against Latino Borrowers

By TChris

In a federal lawsuit filed last week in Los Angeles, the Federal Trade Commission accused Golden Empire Mortgage Inc. of violating the Equal Credit Opportunity Act by charging Latino borrowers higher interst rates and fees than it charged non-Latino whites.

The FTC alleged that the problem stemmed from Golden Empire's practice of giving its employees and branch managers wide leeway to make more money by charging "overages," higher fees and interest rates than the borrowers qualified for. The complaint alleged that the practice resulted in Hispanics being charged more because of their national origin.

In other words, loan officers had discretion to write loans at a higher interest rate or to charge greater up-front fees than the borrower's credit-worthiness and the lender's underwriting risk dictated. The loan officer would keep a piece of the excess charge as compensation. The FTC alleges that Golden Empire made no effort to monitor its loan officers to assure that they weren't targeting Latino borrowers when they used their discretion to charge higher interest rates and fees.

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The FTC's complaint (pdf) alleges:

From at least January 1, 2006 to at least December 31, 2006, Defendants charged Hispanic applicants, on average, higher prices for their mortgage loans than non-Hispanic white applicants. These price differentials were caused by Defendants' Discretionary Pticing Policy. Defendants' Discretionary Pricing Policy resulted in Hispanic applicants being charged higher overages because of their national origin. These disparities in the overages charged are substantial, statistically significant, and cannot be explained by factors related to underwriting risk or credit characteristics of the applicants.

If the suit is successful, Golden Empire will be enjoined from future violations of the Equal Credit Opportunity Act and will be ordered to repay the overcharged borrowers.

Full post as published by TalkLeft on May 12, 2009 (boomark / email).