Fairway, accused of redlining in Alabama, agrees to settle for $1.9M

Fairway Independent Mortgage Corp. has agreed to settle with the Consumer Financial Protection Bureau (CFPB) and the U.S Department of Justice (DOJ) over the regulators’ allegations of mortgage lending discrimination in majority-Black neighborhoods of the Birmingham, Alabama, metro area.

The agreement, which was submitted for court approval, requires the Madison, Wisconsin-based mortgage lender to pay a $1.9 million civil penalty. It also must provide $7 million for a home loan subsidy program in majority-Black neighborhoods, and it must pay at least $1 million to serve the neighborhoods it redlined, according to the terms of the agreement released on Tuesday.

Similar to other lending discrimination cases, the CFPB and the DOJ accuse Fairway of redlining as the company allegedly discouraged people from majority-Black neighborhoods from applying for mortgages, including through its marketing and sales actions. 

Fairway released a lengthy statement on Tuesday in which it said it had been investigated by the CFPB on this matter since the opening days of the Biden administration in 2021. The company also said that it received the allegations after a settlement was reached.

“The complaint significantly mischaracterizes the matter at issue and appear to be intentionally inflammatory in nature,“ the company stated. “For one, the complaint characterizes Fairway’s actions as willful and reckless, a claim that was mutually rejected by the parties prior to settlement. In addition, the complaint characterizes Fairway’s actions as willful and intentional, despite the government agencies’ failure to identify any evidence to support such a claim. Fairway is disappointed by these statements in the complaint, which suggest bad faith by the part of the government agencies.“ 

The company ranked No. 12 among the largest U.S. mortgage lenders in the first half of 2024, with $11.8 billion in home loan production. That was down 18% year over year, per Inside Mortgage Finance estimates. Fairway operates in the Birmingham area under the trade name MortgageBanc, which it acquired in 2009. 

Regulators said that data showed that only 3.77% of Fairway’s applications from 2018 through 2022 were for properties in majority-Black areas of Birmingham. This compared to 12.2% for peer lenders, which the regulators cited as evidence of redlining. In neighborhoods with Black populations of 80% or more, Fairway granted loans at less than one-eighth of the rate of its competitors. 

The regulators added that in the Birmingham area — which has six counties and about 1.1 million people — Fairway had three retail loan offices and three desks in real estate offices, all in majority-white areas. From 2018 to 2020, it directed less than 3% of its direct mail advertising to consumers in majority-Black areas and, despite knowing about the discrepancies, failed to address them. 

“Fairway’s unlawful redlining discouraged families from seeking loans for homes in Birmingham’s Black neighborhoods,” CFPB Director Rohit Chopra said in a statement. 

“This case is a reminder that redlining is not a relic of the past, and the Justice Department will continue to work urgently to combat lending discrimination wherever it arises and to secure relief for the communities harmed by it,” Attorney General Merrick B. Garland added.

Through its Combating Redlining Initiative, the DOJ has collected more than $150 million in relief for communities across the country over the past three years. Redlining is the legal practice of denying certain neighborhoods the same access to credit based on their racial or ethnic composition.

Fairway’s statement said that the multiyear investigation did not identify any evidence of redlining or discrimination. It said the CFPB reviewed loan application data that the company reported under the Home Mortgage Disclosure Act. The bureau calculated the ratio of Fairway’s lending activities in majority-white census tracts to its activities in majority-Black areas, then compared the ratio to those of other lenders.

“The government agencies refused to consider the fact that Fairway took more loan applications and made more loans, in terms of number of loan units, in majority-Black census tracts than any other non-bank lender with a physical presence in the Birmingham MSA,“ the statement read.

“Fairway vigorously defended itself against the government agencies’ allegations and continues to deny that the Company engaged in any discriminatory behavior. Fairway also maintains strong disagreement with the government agencies’ legal and statistical approach to identifying potential discrimination. However, to resolve the matter and curb the further expenditure of resources, Fairway determined that a settlement with the Bureau and the DOJ would be the most appropriate solution.“

Editor’s note: This story was updated with a statement from Fairway.