Responsible Mortgage Lending Principles

INTRODUCTION

In July 2007 the National Association for the Advancement of Colored People (NAACP) filed suit in Los Angeles federal court against 15 of the country’s largest mortgage lending institutions. In this first known lawsuit to challenge such lending practices on a broad scale, the NAACP alleged that these lenders violated the Fair Housing Act, the Equal Credit Opportunity Act, and the Civil Rights Act in their practices toward African Americans. Lenders named in the suit have all made high-cost subprime loans to African Americans who qualified for prime loans.

In 2009, the NAACP produced a report, Discrimination and Mortgage Lending in America: A Summary of the Impact of Subprime Lending on African Americans. Mortgage foreclosures, excessive subprime mortgage interest rates, and hindered access to prime mortgage loans have had an inordinate impact on people of color and other historically disadvantaged borrowers. These practices have resulted in adverse effects even beyond the actual borrowers themselves. Home values have been depressed as a result of these practices, and in general people of color and their families have become increasingly vulnerable to loss of shelter, home security, equity, and wealth—even if they do not have subprime loans.

To encourage transparency and fairness in the processes associated with obtaining quality loans and improving the relationships between financial institutions and people of color and other historically disadvantaged borrowers, the NAACP has developed nine banking principles concerning fairness and mortgage lending.

The following are the NAACP’s “Responsible Mortgage Lending Principals” that we are asking leaders in the lending industry to support.

Responsible Mortgage Lending Principles

PRINCIPLE #1

Loan terms will not be determined by a borrower’s race, ethnicity, gender, national origin, sexual orientation, language preference, disability, religion/creed, or age, except as otherwise permitted or required by law. Additionally, loan terms will not be determined by factors designed to serve as proxies (e.g., zip codes) for the above categories.

PRINCIPLE #2

Every borrower will have the option of selecting a loan product that is appropriate for his or her circumstances. Lending institutions and brokers should provide a transparent counseling process to provide maximum protection to the borrower.

PRINCIPLE #3

Institutions will seek to eliminate policies or practices that encourage biased and exploitive behaviors toward borrowers.

PRINCIPLE #4

Borrowers will be approved only for loans they have a current ability to repay.

PRINCIPLE #5

Each policy may be maintained and monitored for its racial impact.

PRINCIPLE #6

All borrowers will have access to free information, online and in print, that will help them understand and improve the quality of their loans.

PRINCIPLE #7

Lenders will work with borrowers to prevent foreclosures.

PRINCIPLE #8

Lending institutions will support and implement the inclusion of diverse suppliers in their contracting and partnership decisions.

PRINCIPLE #9

Workforce diversity is important to fair decision making and expanded opportunity for economic development.

CONCLUSION

The economic security of our nation depends on the practice of a fair and just democracy, in which individuals and collective communities can access and grow their economic resources without racial or ethnic bias. The mortgage crisis, which contributed to the financial downturn of the nation, has been riddled with unfair practices that if corrected promise to revive not only the integrity of our economy, but also our collective commitment to equal opportunity.

The National Association for the Advancement of Colored People (NAACP) is the nation’s oldest and largest grassroots civil rights organization. Formed in 1909 by a multicultural group of progressive thinkers, the NAACP is a nonprofit organization established with the objective of ensuring the political, educational, social, and economic equality of people of color. For over 100 years, the NAACP has challenged this nation to uphold its promise of equal opportunity toward the goal of eliminating racial prejudice and removing all barriers of racial discrimination through democratic processes. 8

1 U.S. Department of Housing and Urban Development, Unequal Burden: Income and Racial Disparities in Subprime Lending in America (Washington, DC: U.S. Department of Housing and Urban Development, 2000). See also National Community Reinvestment Coalition, The Opportunity Agenda, and Poverty & Race Research Action Council, Homeownership and Wealth Building Impeded: Continuing Lending Disparities for Minorities and Emerging Obstacles for Middle-Income and Borrowers of All Races (2006).

2 D. Bocian, K. Ernst, and W. Li, Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages (Durham, NC: Center for Responsible Lending, 2006), http://www.responsiblelending.org/pdfs/rr011-Unfair_Lending-0506.pdf (accessed March 1, 2009). See also D.E. Getter, “Consumer Credit Risk and Pricing,” Journal of Consumer Affairs (June 22, 2006); H. Lax, M. Manti, P. Raca, and P. Zorn, “Subprime Lending: An Investigation of Economic Efficiency,” Housing Policy Debate 15, no. 3 (2004): 533-571.

3 U.S. Department of Housing and Urban Development, Unequal Burden: Income and Racial Disparities in Subprime Lending in America (Washington, D.C.: HUD, 2000). See also National Community Reinvestment Coalition, The Opportunity Agenda, and Poverty and Race Research Action Council, Homeownership and Wealth Building Impeded: Continuing Lending Disparities for Minorities and Emerging Obstacles for Middle?Income and Borrowers of All Races (2006).

4 Keith Ernst, Debbie Bocian, and Wei Li, “Steered Wrong: Brokers, Borrowers, and Subprime Loans,” Center for Responsible Lending, 2008 http://www.responsiblelending.org/mortgage-lending/research-analysis/steered-wrongbrokers-

borrowers-and-subprime-loans.pdf (accessed August 28, 2009).

Fair Lending Resources

Program Staff

Charles Lowery, Jr., Director of Fair Lending and Inclusion

Email: Clowery@naacpnet.org