Mortgage Banking & Consumer
Financial Products Legal Insight
January 2010
Authors:
Paul F. Hancock
paul.hancock@klgates.com
+1.305.539.3378
Melanie H. Brody
melanie.brody@klgates.com
+1.202.778.9203
David G. McDonough, Jr.
david.mcdonough@klgates.com
+1.202.778.9207
K&L Gates includes lawyers practicing
out of 35 offices located in North
America, Europe, Asia and the Middle
East, and represents numerous GLOBAL
500, FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies,
entrepreneurs, capital market
participants and public sector entities.
For more information, visit
www.klgates.com.
Opening the Fair Lending Enforcement
Floodgates?
Obama Administration Announces New Fair Lending Unit at DOJ;
Vows Vigorous Investigation of Mortgage Lending and Servicing
Practices
Three months into his tenure as the Department of Justice’s Assistant Attorney
General for the Civil Rights Division, Thomas E. Perez recently announced an
aggressive push to investigate and prosecute discriminatory and fraudulent mortgage
lending and servicing practices. In an impassioned January 14, 2010 speech before
the RainbowPUSH Coalition’s Annual Wall Street Conference that equated lending
discrimination to cross burning, Perez proclaimed that the DOJ is “dusting off the
Fair Housing Act and the Equal Credit Opportunity Act” by creating a Fair Lending
Unit within the Civil Rights Division’s Housing and Civil Enforcement Section and
pledged to ramp up the federal government’s investigation of discriminatory and
fraudulent lending and servicing practices.
As head of the Civil Rights Division, Perez’s duties cover not only lending
discrimination, but also what he termed the “most overt forms of discrimination”:
cross burning, hate-fueled violence, and refusals to marry interracial couples. In his
speech, Perez indicated that he sees no difference, at least in effect, between these
acts and discriminatory lending. The latter, he said, is “discrimination with a smile”
and the “corrosive power of fine print is every bit as destructive as the cross burned
in a neighborhood.”
The Department’s fair lending initiative is multi-faceted and appears to merge
lending discrimination and consumer protection into a blended enforcement
initiative. Perez’s announcement reaffirmed the Department’s commitment to
investigate traditional cases of lending discrimination, such as denials or differing
terms of credit because of race or national origin. He also said he would continue the
Division’s focus on lenders that “redline” minority communities as off-limits for
loan products. In a sign of the merger of traditional fair lending with consumer
protection concepts, he also promised a new focus on “reverse redlining” in which
lenders are accused of targeting minority borrowers or communities for inferior loan
products such as subprime or “predatory” products.
Perez co-chairs the non-discrimination working group of the Department’s Financial
Fraud Enforcement Task Force and is ready to use that position to police
“irresponsible” and “fraudulent” lending practices. To this point, consumer
protection enforcement has been left to agencies such as the FTC, and Perez’s ideas
may stretch the statutory authority of the Civil Rights Division. Perhaps he will only
prosecute this consumer protection initiative in the context of claims of racial or
ethnic discrimination, but his speech gave strong indications that the two concepts—
anti-discrimination and anti-fraud—will inhabit overlapping, but not coterminous,
spheres. Ultimately, it may be that other parties to the Task Force handle pure antifraud investigations without a discrimination overlay, but lenders should expect that
Perez’s office will stretch the limits of the Department of Justice’s authority and seek
Mortgage Banking & Consumer Financial Products Legal Insight
an enforcement option for all factual situations that
he believes to be discriminatory or unfair.
Perez also committed that his office will focus
special attention on mortgage servicing. The
Department said it will soon review loan
modification data compiled by the Treasury
Department under the Obama Administration’s
Home Affordable Modification Program. This
review will apparently include analyzing whether
minority borrowers receive less favorable terms or
conditions than comparable non-minority borrowers
in their quest for a loan modification.
The “dusting off” phrase is an obvious slap at an
alleged lack of enforcement in the Bush years, and
Perez’s words reveal an eagerness to return the DOJ
to its place as the preeminent fair lending prosecutor
and enforcer. The new Fair Lending Unit is the
organizational hallmark of this effort. The Housing
and Civil Enforcement Section of the Civil Rights
Division, where the unit will be located, has always
had the responsibility for fair lending enforcement,
but the new unit may allow more focused direction
of resources as its members are relieved of other
duties. Section Chief Steven Rosenbaum will retain
management authority for the program.
Also, however, Eric Halperin, a former career
lawyer in the Civil Rights Division and currently the
Washington director of the Center for Responsible
Lending, is being brought to the Department as
Perez’s point man on fair lending. It appears that he
will not be within the Housing and Civil
Enforcement Section but rather with Perez’s front
office to provide a higher level direction of fair
lending enforcement.
Perez pledged that he will partner with state and
local enforcement agencies, including state attorneys
general, to create a multi-layered, vertically
integrated enforcement environment that, he said,
was lacking “in recent years.” Indeed, partnership
with “down-stream” government bodies dovetails
with Perez’s background as a fair lending advocate
1
See Laurence E. Platt & Nanci Weissgold, Raising
the Ante on Anti-Discrimination Law, K&L Gates
Mortgage Banking & Consumer Financial Products
Group, Dec. 2005 (available at
at the state and local level in Maryland before
coming to the Department. In 2005, as a member of
the Montgomery, Maryland County Council, Perez
spearheaded the passage of a very aggressive antipredatory lending ordinance.1 While a court struck
down the measure as unconstitutional, in his new
role as the top cop for federal fair lending matters,
Perez is in a position to pursue through federal
enforcement and partnerships with state and local
officials many of the same goals that he fought for
as a local official. This partnership with state and
local governments also reflects Halperin’s
experience at the Center for Responsible Lending,
which has traditionally worked more closely with
state attorneys general than has DOJ. For similar
reasons, we can expect the Department’s claims to
rely more heavily on the impact of challenged
practices even if they do not arise from a
discriminatory intent, a legal challenge that remains
controversial (and arguably not legally valid) and
was consciously avoided by the prior Republican
administration.
In sum, we can expect renewed, aggressive and
more far-reaching enforcement from the
Department of Justice.
K&L Gates is uniquely situated to assist in this
regard. Led by Paul Hancock (head of the Civil
Rights Division’s Housing and Civil Enforcement
Section during the George H.W. Bush and Clinton
administrations) and Melanie Brody (with more
than fifteen years of experience in defending fair
lending and consumer protection claims), K&L
Gates’ fair lending enforcement capabilities include
representing companies before the Department, state
bodies, and federal agencies, as well as in litigation.
If you have any questions about the DOJ’s recent
announcement and fair lending initiative, or how
K&L Gates can assist your company in this new,
more aggressive enforcement environment, please
contact Paul Hancock, Melanie Brody, or any other
member of K&L Gates’ mortgage banking and
consumer financial products group.
http://www.klgates.com/files/Publication/ebc0f0b03e8a-429d-8abfa4a0f278b703/Presentation/PublicationAttachment/58c
70772-b382-405a-884bb7f057de3d45/MBC_1205a.pdf).
January 2010
2
Mortgage Banking & Consumer Financial Products Legal Insight
K&L Gates’ Mortgage Banking & Consumer Financial Products practice provides a comprehensive range of
transactional, regulatory compliance, enforcement and litigation services to the lending and settlement
service industry. Our focus includes first- and subordinate-lien, open- and closed-end residential mortgage
loans, as well as multi-family and commercial mortgage loans. We also advise clients on direct and indirect
automobile, and manufactured housing finance relationships. In addition, we handle unsecured consumer
and commercial lending. In all areas, our practice includes traditional and e-commerce applications of
current law governing the fields of mortgage banking and consumer finance.
For more information, please contact one of the professionals listed below.
LAWYERS
Boston
R. Bruce Allensworth
Irene C. Freidel
Stephen E. Moore
Stanley V. Ragalevsky
Nadya N. Fitisenko
Brian M. Forbes
Andrew Glass
Phoebe Winder
Charlotte
John H. Culver III
Los Angeles
Thomas J. Poletti
Miami
Paul F. Hancock
New York
Philip M. Cedar
Elwood F. Collins
Steve H. Epstein
Drew A. Malakoff
San Francisco
Jonathan Jaffe
Elena G. Babinecz
Seattle
Holly K. Towle
Washington, D.C.
Costas A. Avrakotos
Melanie Hibbs Brody
Daniel F. C. Crowley
Eric J. Edwardson
Steven M. Kaplan
Phillip John Kardis II
Rebecca H. Laird
Laurence E. Platt
Phillip L. Schulman
Nanci L. Weissgold
Kris D. Kully
Morey E. Barnes
David L. Beam
Emily J. Booth
bruce.allensworth@klgates.com
irene.freidel@klgates.com
stephen.moore@klgates.com
stan.ragalevsky@klgates.com
nadya.fitisenko@klgates.com
brian.forbes@klgates.com
andrew.glass@klgates.com
phoebe.winder@klgates.com
+1.617.261.3119
+1.617.951.9154
+1.617.951.9191
+1.617.951.9203
+1.617.261.3173
+1.617.261.3152
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+1.617.261.3196
john.culver@klgates.com
+1.704.331.7453
thomas.poletti@klgates.com
+1.310.552.5045
paul.hancock@klgates.com
+1.305.539.3378
phil.cedar@klgates.com
elwood.collins@klgates.com
steve.epstein@klgates.com
drew.malakoff@klgates.com
+1.212.536.4820
+1.212.536.4005
+1.212.536.4830
+1.216.536.4034
jonathan.jaffe@klgates.com
elena.babinecz@klgates.com
+1.415.249.1023
+1.415.882.8079
holly.towle@klgates.com
+1.206.370.8334
costas.avrakotos@klgates.com
melanie.brody@klgates.com
dan.crowley@klgates.com
eric.edwardson@klgates.com
steven.kaplan@klgates.com
phillip.kardis@klgates.com
rebecca.laird@klgates.com
larry.platt@klgates.com
phil.schulman@klgates.com
nanci.weissgold@klgates.com
kris.kully@klgates.com
morey.barnes@klgates.com
david.beam@klgates.com
emily.booth@klgates.com
+1.202.778.9075
+1.202.778.9203
+1.202.778.9447
+1.202.778.9387
+1.202.778.9204
+1.202.778.9401
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+1.202.778.9314
+1.202.778.9301
+1.202.778.9215
+1.202.778.9026
+1.202.778.9112
January 2010
Mortgage Banking & Consumer Financial Products Legal Insight
Holly Spencer Bunting
Krista Cooley
Rebecca Lobenherz
Melissa S. Malpass
David G. McDonough, Jr.
Stephanie C. Robinson
Kerri M. Smith
David Tallman
Director of Licensing
Washington, D.C.
Stacey L. Riggin
holly.bunting@klgates.com
krista.cooley@klgates.com
becky.lobenherz@klgates.com
melissa.malpass@klgates.com
david.mcdonough@klgates.com
stephanie.robinson@klgates.com
kerri.smith@klgates.com
david.tallman@klgates.com
+1.202.778.9853
+1.202.778.9257
+1.202.778.9177
+1.202.778.9081
+1.202.778.9207
+1.202.778.9856
+1.202.778.9445
+1.202.778.9046
stacey.riggin@klgates.com
+1.202.778.9202
Regulatory Compliance Analysts
Washington, D.C.
Dameian L. Buncum
dameian.buncum@klgates.com
Teresa Diaz
teresa.diaz@klgates.com
Jennifer Early
jennifer.early@klgates.com
Robin L. Gieseke
robin.gieseke@klgates.com
Allison Hamad
allison.hamad@klgates.com
Brenda R. Kittrell
brenda.kittrell@klgates.com
Dana L. Lopez
dana.lopez@klgates.com
Patricia E. Mesa
patty.mesa@klgates.com
Jeffrey Prost
jeffrey.prost@klgates.com
+1.202.778.9093
+1.202.778.9852
+1.202.778.9291
+1.202.778.9481
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+1.202.778.9364
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January 2010