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DOJ settlement holds wholesaler liable for higher broker fees on minorities.

The Department of Justice (DOJ) reached a settlement with American International Group Inc.'s subsidiaries (AIG Federal Savings Bank and Wilmington Finance), in which the lender was found liable for the fact that some of its black borrowers were charged higher broker fees than similarly situated white borrowers. In a consent order with DOJ dated March 4, AIG's subsidiaries agreed to pay up to $6.1 million in damages to African-American consumers affected by the fees. AIG also agreed to invest at least $1 million in consumer financial education.

The AIG case began as a compliance exam by a federal banking agency and was referred to DOJ. The Office of Thrift Supervision (OTS) found reason to believe that AIG engaged in a pattern or practice of discrimination based on an analysis of 2005 lending data. Based on that determination, in December 2007, OTS referred the matter to DOJ, according to an article written by Melanie H. Brody and Rebecca Lobenherz in a newsletter published by the law firm K&L Gates, Washington, D.C.

The DOJ investigation focused on wholesale loans funded by the AIG subsidiaries between July 2003 and May 2006.

The DOJ complaint claimed that AIG violated the Fair Housing Act and the Equal Credit Opportunity Act "by allowing third-party mortgage brokers to charge African-American borrowers higher direct broker fees than similarly situated non-Hispanic white borrowers," according to the article. Even though AIG capped yield-spread premiums, DOJ alleged that AIG allowed "brokers unsupervised and subjective discretion in setting the amount of their direct fees." And the end result was higher total broker fees were charged to African-American borrowers.

The article notes that no individual broker was alleged to have charged his or her black borrowers more fees than what was charged that broker's white borrowers. However, according to DOJ, a nationwide statistical analysis of AIG's mortgage loans showed that black borrowers paid on average 20 basis points more in total broker compensation than white borrowers. The article noted that DOJ's complaint alleges that AIG's policies and practices "were intentional and willful, not justified by any business necessity or legitimate business interests, and were implemented with reckless disregard for the rights of black borrowers."

Finally, the K&L Gates article notes, "The settlement is noteworthy because it confirms that the Obama administration believes wholesale lenders should be held responsible for broker fee disparities across borrower groups."
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Title Annotation:Briefing Book
Comment:DOJ settlement holds wholesaler liable for higher broker fees on minorities.(Briefing Book)
Publication:Mortgage Banking
Date:May 1, 2010
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