Fair Housing Act (FHA)

Fair Housing Act (FHAct, 42 U.S.C. § 3601 et seq.), which is implemented by the Department of Housing and Urban Development’s (HUD) regulations (24 CFR Part 100), was enacted as Sections 800 to 820 of Title VIII of the Civil Rights Act of 1968, as amended. FHAct makes it unlawful for lenders to discriminate against any person in making available a residential real estate-related transaction or to discourage an applicant from submitting a loan application based on race, color, national origin, religion, sex, familial status, or handicap.

In particular, FHAct applies to financing or purchasing a mortgage loan secured by residential real estate. Specifically, a lender may not deny a loan or other financial assistance for the purpose of purchasing, constructing, improving, repairing, or maintaining a dwelling on any of the prohibited bases noted above. FHAct also makes it unlawful for a lender to use a prohibited basis to discriminate in setting the terms or conditions of credit, such as the loan amount, interest rate, or duration of the loan on a prohibited basis.

Furthermore, a lender may not express, orally or in writing, a preference based on any prohibited factors or indicate that it will treat applicants differently on a prohibited basis, even if the lender did not act on that statement. A violation may still exist even if a lender treated applicants equally.

In addition, because residential real estate-related transactions include any transactions secured by residential real estate, FHAct’s prohibitions (and regulatory requirements in certain areas, such as advertising) apply to home equity lines of credit as well as to home purchase and refinancing loans. These prohibitions also apply to the selling, brokering, or appraising of residential real property and to secondary mortgage market activities. Consequently, a credit union’s policies, procedures and practices involving housing finance should be broadly examined to ensure that the credit union does not otherwise make unavailable or deny housing.

Sexual Orientation and Gender Identity

Although FHAct does not expressly prohibit discrimination based on sexual orientation or gender identity, HUD addressed gay, lesbian, bisexual, and transgender (LGBT) housing discrimination by issuing the Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity Rule (Equal Access Rule, 77 Fed. Reg. 5662, Feb. 3, 2012). The Equal Access Rule applies to housing assisted or insured by HUD, thereby impacting Federal Housing Administration-approved lenders and others participating in HUD programs. Specifically, a determination of eligibility for housing that is assisted by HUD or subject to a mortgage insured by the Federal Housing Administration shall be made in accordance with the eligibility requirements provided for such program by HUD, and such housing shall be made available without regard to actual or perceived sexual orientation, gender identity, or marital status. (24 CFR §§ 5.100 and 5.105(a)(2)). The Equal Access Rule became effective on March 5, 2012.

Fair Housing Act (FHAct, 42 U.S.C. § 3601) can be found here

HUD’s Regulations (24 CFR Part 100) can be found here

For Equal Access to Housing in HUD Programs Regardless of Sexual Orientation and Gender Identity (Equal Access Rule) can be found here

NCUA Rules and Regulations 12 CFR § 701.31 can be found here

Definitions used in:

FHAct (42 U.S.C. § 3602) can be found here
HUD Regulations (24 CFR § 100.20) can be found here
Subpart A – Generally Applicable Definitions and Requirements; Waivers (24 CFR § 5.100) can be found here
Subpart G - Discriminatory Effect of HUD Regulations (24 CFR § 100.500) can be found here
NCUA Rules and Regulations (12 CFR § 701.31(a)) can be found here

Associated Risks
Exam Objectives
Exam Procedures
Checklist

Associated Risks

Compliance risks can occur from adverse examinations or investigations, which could lead to public or non-public enforcement actions with significant fines and/or penalties. Evidence of a “pattern or practice” of discrimination may result in a referral to the U.S. Department of Justice.

Reputational risk can occur when the credit union fails to comply with the FHAct and individual or class action lawsuits are brought against the credit union it incurs fines and penalties through public enforcement actions or receives negative publicity or declined membership confidence as a result of failure to comply with the FHAct.

Examination Objectives

Determine whether the credit union has established policies, procedures, and internal controls to ensure that it is in compliance with FHAct, its implementing regulation 24 CFR Part 100, and the relevant NCUA regulation, 12 CFR § 701.31.
Determine whether the credit union discriminated against members of one or more protected classes in any aspect of its residential real estate-related transactions.
Determine whether the credit union is in compliance with those requirements of the FHAct set forth in HUD’s implementing regulation and the NCUA’s relevant regulation.

Exam Procedures

Determine whether the board has adopted policies, procedures, and general underwriting standards concerning nondiscrimination in lending and that officials review nondiscrimination policies, loan underwriting standards, and related business practices regularly. In order to assure compliance with the FHAct, the policies, procedures, and standards must, at a minimum state that the credit union does not discriminate in residential real estate-related transactions based on (12 CFR § 701.31(b), 24 CFR § 100.50(b), 24 CFR § 5.100):
- Race;
- Color;
- National origin;
- Religion;
- Sex;
- Familial status; and,
- Handicap.
Determine that the credit union has policies that prohibit the employees from making statements that would discourage the receipt or consideration of any application for a loan or other credit service.
Conduct interviews of loan officers and other employees or agents in the residential lending process concerning adherence to and understanding of the credit union’s nondiscrimination policies and procedures as well as any relevant operating practices.
Review any available data regarding the geographic distribution of the credit union’s loan originations with respect to the race and national original percentages of the census tracts within its residential real-estate lending area.
Review rejected mortgage loan applications to determine if the credit union has engaged in prohibited practices, including discrimination on the basis of:
- The racial composition of an area;
- The income level of an area; or
- The language of an applicant(s).
Review the credit union’s practices, records, and reports to determine if it sets more stringent terms (e.g. down payments, interest rates, terms, fees, loan amounts, etc.) for residential real estate-related loans in certain geographic areas located reasonably within its operational area (§ 701.31(b)(3)). If the credit union has set more stringent terms, conduct a review of loans made in that geographic area to determine whether the credit union’s use of more stringent standards had a legally sufficient justification.
Determine that the credit union has not set an arbitrary limit on loan size and the income required before granting a loan.
Determine from the loan review whether the credit union makes a disproportionate number of loans under one type of financing (e.g., FHA, VA, other alternative mortgage instruments).
Determine the credit union is not using appraisals or the appraisal process to discriminate (§ 701.31(c)). Ensure the credit union refrains from discounting appraised values, e.g., lowering the appraised value of a property due to its location or some negative comment on the appraisal form.
Review approved and rejected loan applications to ensure the credit union uniformly applied economic factors including but not limited to:
- Income and debt ratios;
- Credit history;
- Security property;
- Neighborhood amenities;
- Personal assets.
Review the appropriate loan records to determine whether the credit union administers the following without bias (§ 701.31):
- Loan modifications;
- Loan assumptions;
- Additional collateral requirements;
- Late charges;
- Reinstatement fees;
- Collections.
- Visually determine whether the credit union has an Equal Housing Lender Poster conspicuously placed in all of the credit union’s offices and that all nondiscrimination notices comply with the requirements of § 701.31(d).
Determine that a sampling of the credit union’s advertising complies with the requirements of § 701.31(d).