Recently the U.S. Department of Housing and Urban Development (HUD) announced an agreement with Bank of America (BOA) to settle a claim that the mortgage lender refused to provide financing to a lesbian couple. The agreement is the first enforcement action taken against a lender involving HUD’s recent rule ensuring that the Department’s core housing programs be open to all eligible persons, regardless of sexual orientation, gender identity, or marital status.
HUD’s rule, Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity (Equal Access), prohibits lenders from basing eligibility determinations for mortgage loans insured by the Federal Housing Administration (FHA) on actual or perceived sexual orientation, gender identity or marital status. HUD’s Equal Access rule applies to all housing programs administered by the Department.
John Trasviña, HUD’s Assistant Secretary for Fair Housing and Equal Opportunity, stated, “The HUD Equal Access Rule means just what it says: one’s sexual orientation, gender identity or marital status is not a legitimate basis on which to deny a mortgage. Members of the housing industry should take note of this settlement agreement. HUD will enforce its regulations to make sure its programs are truly open to all qualified families.”
HUD claimed BOA denied a loan to a Florida couple seeking to obtain an FHA-insured mortgage because of their sexual orientation and marital status. Because one partner was not employed, the applicant enlisted her partner’s mother as a co-applicant on the loan. The couple worked with BOA for several weeks to provide all of the necessary loan application documents and the couple was assured by BOA that they were likely to receive a mortgage. One business day prior to closing, BOA denied the mortgage because it did not consider the loan applicant and the co-applicant directly related because the applicant and her partner were not married. As a result of BOA’s actions, the couple was not able to close on the loan.
Under the terms of the agreement, BOA:
- Agrees to pay HUD $7,500;
- Agrees to notify its residential mortgage loan originators, processors and underwriters of its Settlement Agreement with HUD;
- Will remind its employees that they are prohibited from discriminating against FHA-loan applicants on the basis of sexual orientation, gender identity or marital status;
- Will update its fair lending training program to include information on HUD’s rule.
The Equal Access rule essentially expands Fair Lending to require that housing that is assisted by HUD or subject to a mortgage insured by the Federal Housing Administration shall be made available without regard to actual or perceived sexual orientation, gender identity, or marital status.
The rule was effective March 5, 2012. This is HUD’s first enforcement action under the rule. We expect to see it trickle down to other lenders, including community banks.
So what needs to be done to avoid an enforcement action similar to BOA’s Settlement Agreement? Follow the prescription that HUD applied to BOA. Start by educating everyone, including directors, senior management, and residential mortgage loan originators, processors and underwriters, on the new Equal Access rule. Revise policies and procedures, including audit procedures, to address the rule.