The U.S. District Court for the Eastern District of Pennsylvania has announced the termination of a 2022 consent order between the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) against nonbank mortgage lender, Trident Mortgage Company.
The CFPB and DOJ took action to end Trident Mortgage Company’s alleged discrimination against families living in majority-minority neighborhoods in the greater Philadelphia area. The CFPB and DOJ accused Trident of redlining in majority-minority neighborhoods through its marketing, sales, and hiring actions. Specifically, Trident was accused of discouraging prospective applicants from applying for mortgage and refinance loans in the greater Philadelphia area’s majority-minority neighborhoods.
“Redlining” refers to a practice–originally sanctioned in the 1930s by the federal government–by which banks and mortgage lenders systematically underserve and discriminate against neighborhoods with high percentages of African Americans, Hispanics, or other marginalized racial and ethnic minorities. The practice deprives such areas and their residents of adequate credit. The lack of competition also makes residents of redlined neighborhoods vulnerable to unscrupulous, predatory lending. Historic redlining and underinvestment in majority-minority neighborhoods, generally correlate with troubling patterns of poverty and blight.
Until it stopped accepting mortgage loan applications in 2021, Trident Mortgage Company was a non-depository mortgage company operating in Delaware, Maryland, New Jersey, and Pennsylvania. Trident’s lending focus was first mortgage loans and refinancing home loans. Between 2015-2017, approximately 80% of Trident’s mortgage applications came from the Philadelphia Metropolitan Statistical Area (MSA)—including the cities of Philadelphia, Pennsylvania; Camden, New Jersey; and Wilmington, Delaware; as well as Cecil County, Maryland.
The recently issued motion to terminate the consent order, filed jointly by the CFPB and DOJ, stated that Trident had fulfilled its obligations under the 2022 order, including:
- Paid $18.4 million into a loan subsidy program: To increase nondiscriminatory access to credit, Trident established a loan subsidy program. A lender it contracts with will offer loans to qualified applicants on a more affordable basis when borrowing to purchase properties in majority-minority neighborhoods in the Philadelphia MSA. The loan subsidies can include closing cost assistance, down payment assistance, and payment of mortgage insurance premiums. Through the lender it contracts with to make loans under the subsidy fund, Trident ensured the lender has four offices located in majority-minority neighborhoods. These lending offices will provide similar services to those provided through Trident’s offices.
- Paid a $4 million fine: Trident paid a $4 million penalty to the CFPB, which was used for the CFPB’s victims’ relief fund.
- Paid an additional $2 million: Trident spent $2 million to fund advertising to generate applications in redlined areas, as well as to take other steps to serve the credit needs of majority-minority neighborhoods in the Philadelphia MSA.
Trident was accused of violating the Equal Credit Opportunity Act (ECOA), Regulation B, the Consumer Financial Protection Act (CFPA), and the Fair Housing Act (FHA) through its actions between 2015 and 2019.
Redlining cases and the mortgage industry have been a hot button topic of late, as U.S. District Judge Franklin Valderrama recently denied an attempt by the CFPB to vacate a previous redlining settlement against Townstone Financial in the case of CFPB v. Townstone Financial, Inc., No. 1:20-cv-0417, finding there was no basis for granting the request. The CFPB originally brought the case in 2020 during Donald Trump’s first term as U.S. President, accusing Townstone Financial of “redlining” by discouraging would-be minority homebuyers from applying for mortgages through derogatory and disparaging comments in promotional materials.
Earlier this year, Acting Director of the CFPB Russ Vought asked to vacate the settlement the CFPB extracted from Townstone Financial after a seven-year harassment saga. Using a “redlining screen” based on an arbitrary number of mortgages, CFPB set out to destroy a small Midwest firm with about 10 employees and a radio program called Townstone Financial. After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay.
