Lowell, Mass.-based mortgage lender Sage Bank will pay $1.175 million to resolve allegations brought by the U.S. Department of Justice (DOJ) that it violated the Fair Housing Act and the Equal Credit Opportunity Act by charging African-American and Hispanic borrowers higher prices for home loans than it did for white borrowers with comparable creditworthiness.
As per a DOJ press release, Sage Bank had a pricing policy in place wherein each of its loan officers was assigned a ‘target price,’ which was the price a loan officer was required to achieve on each home loan, regardless of a borrower's creditworthiness.
The DOJ's complaint alleges that the loan officers who were assigned higher target prices disproportionately served African-American and Hispanic borrowers. The complaint also alleges that loan officers had the discretion to price loans above their target prices and did so to a greater extent for African-American and Hispanic borrowers than for white borrowers.
The result, the complaint alleges, was that the average African-American borrower paid about $2,500 more for his or her loan than did a similarly qualified white borrower, while the average Hispanic borrower paid about $1,400 more.
Provided the DOJ's consent order is approved, Sage Bank will pay $1.175 million into a settlement fund to compensate affected borrowers and applicants.
In addition, the bank will be required to establish a new loan pricing policy and a new loan officer compensation policy. It will also be required to have its loan officers and bank employees undergo fair housing and fair lending training and establish a monitoring program to detect future unlawful disparities in mortgage loan pricing.
‘Sage Bank's loan pricing policies created the risk that borrowers would be treated differently based on impermissible characteristics like race and national origin, and that was, in fact, the result,’ says Principal Deputy Assistant Attorney General Vanita Gupta, head of the civil rights division, in a statement. ‘This settlement ensures that all potential borrowers will be treated equally, regardless of race and national origin, and Sage Bank has agreed to restructure and monitor its lending practices to ensure that it is meeting those obligations.’