Two subsidiaries of American International Group (AIG) Inc. have agreed to pay a minimum of $6.1 million to resolve charges that they engaged in a pattern or practice of discrimination against black borrowers.
Brought under the federal Fair Housing and Equal Credit Opportunity Acts, the Justice Department complaint claims black borrowers nationwide were charged higher fees on wholesale loans made by AIG Federal Savings Bank (FSB) and Wilmington Finance Inc. (WFI), an affiliated mortgage lending company.
"Discriminatory practices by lenders, brokers, and other players in the mortgage market contributed to our nation's housing crisis and economic meltdown," said Thomas E. Perez, Assistant Attorney General in charge of the Justice Department's Civil Rights Division. "Lenders who looked the other way and ignored the discriminatory practices of brokers must be held accountable."
AIG FSB and WFI contracted with mortgage brokers to obtain mortgage applications that were underwritten and funded by the defendants. According to the complaint, AIG FSB and WFI failed to supervise or monitor brokers in setting broker fees.
Stacey of Wenatchee, WA, is among consumers who ran into problems with Wilmington Finance when she refinanced her mortgage. "David, our loan officer, told me that he would be rebating the administrative fees to make their services more competitive with other lenders," she tells ConsumerAffairs.com. "When my husband and I went to sign the documents these fees were included and the fee schedules did not match up with other documents. I phoned David to ask about these issues. He said to sign the paperwork and he would fix everything before the "right to cancel" time ran out."
He never fixed these problems, even though he told us he did. He said he would issue us a separate check (apart from our cash-out) and FedEx it. "The right to cancel ran out without us knowing that the problem had not been fixed," she concludes.
This practice had a disparate impact on black borrowers, who were charged higher broker fees than white, non-Hispanic borrowers on thousands of such loans from July 2003 until May 2006, a period of time before the federal government obtained an ownership interest in AIG.
The settlement is significant, said Perez, "because it marks the first time the Justice Department has held a lender responsible for failing to monitor its brokers to ensure that borrowers are not charged higher fees because of their race. If necessary, it will not be the last time."
According to the settlement, which is subject to court approval, AIG FSB and WFI will pay up to $6.1 million to black customers who were charged higher broker fees than similarly-situated, non-Hispanic white customers, and will invest at least $1 million in consumer financial education efforts. AIG FSB and WFI will also be prohibited from discriminating on the basis of race or color in any aspect of wholesale home mortgage lending.
AIG FSB and WFI are not currently engaged in the business of wholesale home mortgage lending, but the settlement provides that if either defendant re-enters that business, the lender will implement specific, nonracial standards for broker fees and monitor all fees charged on the mortgage loans they fund to ensure that all customers are treated equally.
The AIG settlement is part of a federal crackdown on the financial services industry that got underway last year.
