1.Background

In 2019, the CFPB issued a Supervisory Letter to DKMC identifying significant deficiencies in its compliance program related to redlining risks. These deficiencies included gaps in policies and procedures, lack of employee training, and inadequate internal monitoring. Despite these warnings, the CFPB’s complaint reveals that the lender failed to address these issues adequately between 2019 and 2021, leading to systemic disparities in lending practices.

2.Key Findings in the Complaint

The CFPB’s investigation uncovered several discriminatory practices and shortcomings, including:

2.1Disparate Lending Performance

The CFPB’s investigation uncovered several discriminatory practices and shortcomings. In terms of lending performance, DKMC significantly underperformed its peers in majority-Black and Hispanic neighborhoods. For example, in Chicago, only 6.7% of DKMC’s applications originated from majority-minority neighborhoods, compared to 19.1% for its peers. Similar disparities were noted in the Boston MSA.

2.2Office and Personnel Placement

DKMC’s offices were predominantly located in majority-white areas, and none of its loan officers resided in majority-minority neighborhoods. The company made no meaningful efforts to hire LOs with ties to referral sources in minority-majority communities.

2.3Marketing Practices

DKMC’s marketing and outreach were heavily focused on majority-white areas, with print advertisements featuring exclusively white models. Spanish-language marketing materials were not available until May 2021, and even then, they were limited to two LOs in the Chicago MSA.

2.4Internal Monitoring and Training

From 2019 to 2021, DKMC failed to conduct internal analyses to monitor redlining risk. Training materials lacked critical information, such as a definition of redlining. Moreover, loan officers exchanged emails demonstrating racial bias, and applications handled by these officers were overwhelmingly for properties in majority-white areas.

3.Settlement Terms

Under the settlement’s Consent Order, DKMC agreed to several terms. The company is prohibited from originating residential mortgage loans for five years. Additionally, it must pay a $1.5 million civil money penalty. While DKMC voluntarily ceased its mortgage lending operations in 2024, the settlement includes measures to ensure compliance with fair lending laws should the company resume operations in the future.

4.Implications for Mortgage Lenders

This case underscores the importance of robust compliance programs to mitigate redlining risks. Mortgage lenders should proactively monitor their practices by conducting regular internal audits and analyses to identify potential redlining risks and ensure equitable lending. Training programs should comprehensively address fair lending obligations and include clear definitions and examples of redlining.

Marketing strategies should be inclusive and representative of diverse communities, ensuring outreach is not disproportionately focused on majority-white neighborhoods. Leveraging data to assess performance across demographic groups and geographies is essential, enabling lenders to address disparities promptly.

5.CFPB’s Continued Focus on Redlining

This settlement reflects the CFPB’s ongoing commitment to holding lenders accountable for discriminatory practices, even as administrative transitions occur. Mortgage companies should view this as a clear signal to prioritize fair lending compliance and implement measures to promote equal access to credit.

For more details, including the CFPB’s press release, complaint, and proposed consent order, click here