By Charlene Crowell

A four-year investigation begun by Pennsylvania’s state attorney general attracted the support and resources of the United States’ Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) to bring the first-ever redlining enforcement involving a non-bank lender.

On July 27, Trident Mortgage Company was ordered to pay over $22 million for discriminatory lending patterns in majority-minority neighborhoods throughout the greater metropolitan Philadelphia region, including Camden, New Jersey and Wilmington, Delaware. The enforcement now goes before a federal court for approval of the second largest redlining settlement in the history of the Justice Department.

“This settlement is a stark reminder that redlining is not a problem from a bygone era. Trident’s unlawful redlining activity denied communities of color equal access to residential mortgages, stripped them of the opportunity to build wealth and devalued properties in their neighborhoods,” said Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division. “Along with our federal and state law enforcement partners, we are sending a powerful message to lenders that they will be held accountable when they run afoul of our fair lending laws.”

Until it stopped accepting mortgage loan applications in 2021, Trident operated as a non-depository mortgage company in Delaware, Maryland, New Jersey, and Pennsylvania, marketing and selling both first mortgage loans and refinancing home loans. From 2015 to 2017, an estimated 80 percent of Trident’s mortgage applications came from the Philadelphia Metropolitan Statistical Area (referred to as the Philadelphia MSA) that includes the cities of Philadelphia, PA, Camden, NJ, and Wilmington, DE, as well as Cecil County, MD.

According to the complaint, Trident’s application data revealed only 12 percent of its mortgage loan applications came from majority-minority neighborhoods - even though more than a quarter of neighborhoods in the Philadelphia MSA are majority-minority. Of the mortgage loan applications Trident did receive from applicants in majority-minority neighborhoods, most of the applicants were white.

Citing violations of the Equal Credit Opportunity Act, the Consumer Financial Protection Act, and the Fair Housing Act, the government’s investigation uncovered a wide range of problematic conduct by Trident. Representative examples of that behavior include:

• Trident’s loan officers, assistants, and other employees received and distributed e-mails containing racial slurs and racist content. In addition to using racist tropes and terms, communications sent on work e-mails included pejorative content specifically related to real estate properties’ locations and appraisals. The racist content also targeted the people living in majority-minority neighborhoods;
• Of Trident’s 53 different offices across the Philadelphia MSA, 51 were in majority-white neighborhoods. The other two offices were in neighborhoods with minority groups representing roughly half of the population; and
• A series of Trident’s direct mail marketing campaigns between 2015 through 2018 depicted only white models and employees and only in majority-white neighborhoods.

“Companies that use their power to discriminate and rob individuals of opportunity based on the racial makeup of their neighborhoods is not only unacceptable, it is illegal,” said Pennsylvania Attorney General Josh Shapiro. “Through our investigation, we allege that hard working Pennsylvanians were denied the chance at the American dream simply because of where they live, which unfortunately in America is inextricably tied to who they are.”

To remedy these offenses and other lending ills noted in the investigation, Trident, once approved by the federal court, would make multiple financial resources available to assist prospective mortgage applicants: $18.4 million loan subsidy program that would operate in four offices in majority-minority neighborhoods, a $4 million fine payable to CFPB’s victim relief fund, and a $2 million advertising fund to generate mortgage applications in redlined areas.

Although significant punitive actions can deter some financial institutions from violating fair lending laws, an even greater concern underlies these recent developments. For several years, mortgage lending has shifted away from major banks and towards non-bank mortgage firms like Trident.

According to the most recent analysis of the annual report on the Home Mortgage Disclosure Act (HMDA) and analyzed by BankRate.com, only three of 2021’s largest mortgage lenders by volume were banks. The largest bank lender last year was Wells Fargo whose 376,000 loans totaled $141 billion. The other two banks appearing in the top 10 were JP Morgan Chase ($112 billion) and Bank of America ($84 billion).

By contrast, 2021’s two top mortgage lenders by volume were Rocket Mortgage leading the list with $340 billion loaned to finance 1.2 million originations and United Wholesale Mortgage’s $227 billion that financed 654,000 loans. Further, these totals represent lending increases above totals recorded the previous year.

“This has been the general trend since the financial crisis,” said Greg McBride, Bankrate’s chief financial analyst. “Banks have backed off of — but not eliminated — originations. Non-banks more than filled the void as the market picked up, and the big banks often buy the servicing rights so they’re in the game with less risk and cyclicality on the origination side.”

It would be naïve to shift fair lending and housing enforcement to a single financial category. Instead, it behooves consumers, regulators, and advocates to all be mindful of the many forms and sources of illegal discrimination. Banks, non-banks, and all lenders must be held accountable – whenever and wherever illegal lending occurs.