"AIG subsidiaries pay $6 million in racial discrimination settlement"

[WhiskeyGirl]

Two subsidiaries of bailed out insurer AIG have agreed to pay at least $6 million to resolve claims of discriminatory lending, the Justice Department announced.

The subsidiaries, a bank and a mortgage lender, allegedly charged higher fees to African American borrowers.

The higher fees occurred between 2003 and 2006, before the federal government bailed out the insurer with a maximum exposure of $180 billion in taxpayer aid. The insurer was crippled under the weight of poor trades in financial derivatives products.

"Today’s settlement is significant 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," Thomas Perez said, assistant attorney general said in a press release.

http://thehill.com/blogs/blog-briefing-room/news/85059--aig-subsidiaries-pay-6-million-in-racial-discrimination-settlement

Why didn't DOJ go after the brokers? 

Why socialize the discrimination?

What is the evidence?  Statistics? 

I have to wonder if this is 'statistical' discrimination.

How much more statistical discrimination will Holder's DOJ find when all employers are required to report race and pay information every other year?

What exactly are the details?  Where is the proof that race was related to the fees charged?

How many broker did AIG have? 

Of these two, how much of their business was with African Americans?

Was it the brokers who charged more?  Or did the brokers appear to charge more to African Americans?

How much non-African American business did the brokers have?

Did non-African Americans at those two brokers pay the same high rates?

[WhiskeyGirl]

WILMINGTON, Del. (CN) - Two units of AIG will pay $6.1 million to settle a racial discrimination mortgage lending complaint with the Department of Justice. Prosecutors said that AIG Federal Savings Bank and Wilmington Finance allowed third-party brokers to charge black borrowers more than white ones nearly 180,000 times from 2003 to 2006.

     The defendants agreed to pay $6.1 million for violations of the Fair Housing and the Equal Credit Opportunity Acts, prosecutors said in the consent order.

     The third-party brokers earned compensation in two ways: through yield spread premiums paid by the defendants and by direct fees paid by the borrowers.

     Because the defendants failed to monitor or supervise the brokers, they were able to charge black borrowers nationwide significantly more than white ones.

     The defendants deny any wrongdoing; the settlement requires court approval.

http://www.courthousenews.com/2010/03/08/25350.htm

If non-African Americans paid the higher fees, will they get part of the settlement?

Are businesses required to implement racial quotas?

[WhiskeyGirl]

According to the settlement, which is subject to court approval, AIG FSB and WFI will pay up to $6.1 million to African American customers who were charged higher broker fees than similarlysituated, 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.

http://www.mortgageorb.com/e107_plugins/content/content.php?content.5413

If you're a non-African American, it must be OK to charge you higher fees.

How many will share in the $6.1 million?

Was this case based on statistics?

[WhiskeyGirl]

"Today’s settlement serves as a reminder for why President Obama established the Financial Fraud Enforcement Task Force and as an example of what you can expect to see in the future," said Executive Director of the FFETF Robb Adkins. "The type of interagency communication that spurred this case and the subsequent hard work of dedicated law enforcement professionals will be the foundation for the task force’s achievements on behalf of the American people. Moving forward, the American people should expect to see more cases, public outreach and concrete results as an outcome of our new cooperation."

This case resulted from a referral by the Treasury Department’s Office of Thrift Supervision to the Justice Department’s Civil Rights Division in 2007, when this type of communication between agencies was too often the exception to the rule, said Adkins. In November 2009, President Barack Obama established the FFETF to make such cross-agency coordination the standard.

http://www.justice.gov/opa/pr/2010/March/10-crt-226.html

With all the racial and demographic reporting requirements of the Paycheck Fairness Act, I imagine many businesses will be under the gun due to these interagency referrals...

Is that the real goal of the Paycheck Fairness Act? 

[WhiskeyGirl]

From the complaint -

11. Under the Mortgage Loan Services Agreement, between 2003 and 2006 WFI originated and AIG FSB funded approximately 179,000 home mortgage loans throughout the United States. Approximately 94% of these loans were "wholesale" loans procured by WFI through third-party mortgage brokers.

Why didn't they go after the brokers?  How many of the brokers were African American?  Isn't it possible the brokers were racist?

Did they compare the statistics of all people those brokers wrote to look for a pattern? 

Example, person A writes 100 mortages, and 50 of those are for African Americans.  Did person A charge everyone the same?  Or is there a pattern for person A of charging only African Americans more?

Is it possible person A only wrote business in the African American community?

Of 197,000 how many mortgages went to African Americans?

Did they look at similar business within a individual brokers portfolio, or did they slice and dice national statistics to find their statistical discrimination?

15. From July 2003 to May 2006 black borrowers nationwide were charged total broker fees 20 basis points higher¹ as a percentage of the loan amount, on average, than the total broker fees charged to white borrowers for WFI and AlG FSB's loans. These disparities extended to at least the following 19 metropolitan areas in which AlG FSB and WFI made a substantial number ----of broker ed-loans-to black-and white-borrowers: Atlanta, Baltimore, Birmingham, Cincinnati, Chicago, Cleveland, Detroit, Hartford, Kansas City, Las Vegas, Memphis, Nassau County, New York, Orlando, Philadelphia, Phoenix, Portland OR, St. Louis, and Tampa. In these MSAs black borrowers paid total broker fees ranging from 25 to 75 basis points higher, on average, than the total broker fees paid by white borrowers. All of these disparities are statistically significant.

"on average"  - Let's see your statistics.  How did you slice and dice?
Did they look at the specific brokers block of business?  The individuals making the deals?  Or, did they slice and dice the who block to find discrimination?

"total broker fees" - Let see your statistics.  How did you slice and dice?
Did they look at the specific brokers block of business?  The individuals making the deals?  Or, did they slice and dice the who block to find discrimination?

Did they average the statistics of the whole nation for white folks?  Or did they compare the African-American averages in those cities to the averages for non-Hispanic whites?

Isn't it possible that brokers charge more in big cities due to city/state imposed taxes and fees?

Isn't it possible that the 'total broker fees' are an apples to oranges comparison?

¹ One basis point represents one hundredth of a percentage point (0.01 %); thus a 25 basis point differential represents one quarter of one percent.

http://www.justice.gov/crt/housing/documents/aigcomp.pdf

1/4 of 1% higher? 

How many whites paid rates similar to those paid by African-Americans.  Are non-African-Americans who paid rates similar to those paid by African-Americans getting the bonus money too?

What is the racial breakdown of the 197,000 mortgages?

Where are the DOJ statistical data?  Maybe some would slice and dice differently and find another answer?

How much of this is subjective and not objective?

[WhiskeyGirl]

From the consent order - http://www.justice.gov/crt/housing/documents/aigproposesettle.pdf

1 For purposes of this Order, wholesale mortgage brokers are independent third-party entities in which the Defendants have no ownership interest and no exclusive relationship, who act as an intermediary with borrowers to procure home-mortgage loan applications for funding by Defendants, and who are paid a fee directly by borrowers for such services. The wholesale mortgage brokers at issue in this lawsuit entered into broker agreements with one or both Defendants regarding their procurement of home-mortgage loan applications for funding by a Defendant.

In the future, independent third-party entities can't charge what they want?  They are captives of the party they work for?

Why doesn't this apply to the Wall Street banks?  It seems like the EU wants to limit their compensation and profits for derivatives and credit swaps.  Geithner is fighting the EU and threatening a trade war to protect Wall Streets rights.

In addition, Defendants will compensate certain AfricanAmerican borrowers based on an agreed upon formula to identify such borrowers by reference to, among other factors, the direct mortgage broker fees they paid.

There has been no factual finding or adjudication with respect to any matter alleged by
the United States. The parties have entered into this Order to avoid the risks and burdens of
litigation, and to resolve voluntarily the claims in the United States' Complaint relating to
Defendants' alleged violations of fair-lending laws. The parties agree that full implementation of
theterms of this Order will provide a fair and reasonable resolution of the claims of the United
States in a manner consistent with the Defendants' legitimate business interests.

How many African Americans?  5?  1,000? 

Is '5' a statistically significant?  How many will share the $6.1 million dollars?

2 "Direct" broker fees (sometimes called "up-front" broker fees) means fees paid directly by the borrower to the broker for services rendered by the broker to the borrower in connection with securing a real estate-related loan. A borrower typically pays these fees at closing either with cash brought to the closing, or out of the loan proceeds. Direct broker fees do not include amounts paid by the lender to the broker or miscellaneous fees, such as appraisal costs and title searches.

Are the broker fees determined by state and local law?  Fees?  Taxes?

What is the component of the fees?

Are all fees charged to consumers reported to the lender? 

From my experience, sometimes, 'fees' are kept kept as profits and not turned over.  Sometimes, these 'broker' type fees are regulated by states, and sometimes they are not.

What effect does state and local law have on the fees charged?

AIG FSB and WFI shall each develop and implement, as part of a loan-pricing policy, specific, nonracial standards for the assessment of direct broker fees on residential real
estate-related loans that AIG FSB or WFI underwrites, originates, or funds that are designed to avoid unlawful race discrimination by the Defendants. The loan pricing policy shall also require written documentation of such fees be maintained in each loan file and be among the application documents submitted to either Defendant. These requirements shall be made part of any broker agreement between a wholesale mortgage broker and either Defendant. AIG FSB and WFI have represented that when they have engaged in the wholesale home-mortgage lending business they had in place limits on the amount of yield-spread premiums (YSPs) that may be earned by mortgage brokers on loans. Defendants also shall incorporate YSP limits into their loan-pricing policies.

Disclosure is always good. 

Haven't seen anything to suggest DOJ used an 'apples to apples' fee comparison for the building of the statistical comparisons...

F. Consumer Education
10. Through the funding mechanism set forth in paragraph 21, Defendants shall
provide a minimum of $1,000,000 to qualified organization( s) to provide credit counseling,
financial literacy, and other related educational programs targeted at Afl:ican-American
borrowers. The Defendants will consult with and obtain the non-objection of the United States in selecting recipient(s) of these funds, and the parties shall obtain the Court's approval prior to distribution of the fund.

Another $1 million or more for education?  Will this be going to community organizations?

18. Within 90 days of the Effective Date of this Consent Order, the United States
shall provide to Defendants a list of aggrieved persons and an amount each individual shall
receive from the Settlement Fund to compensate for both economic and non-economic damages these persons may have suffered, subject to the conditions set forth in paragraph 19 below. Defendants shall have fifteen days in which to review the list and the United States shall consider in good faith any issues raised by Defendants.

If they don't know their victims until they get the letter?

21. Any moneys not distributed from the Settlement Fund including accrued interest
within one year of the date the initial notifications are sent to persons deemed to be aggrieved by the United States pursuant to paragraph 19 (Remaining Moneys) shall be distributed for educational purposes as provided for in paragraph 10. In the event the Remaining Moneys total less than $1,000,000 at that time, Defendants shall replenish the Settlement Fund so that it contains $1,000,000 for distribution for those educational purposes.

How many are there?  10?  Each get's $50,000 and the rest to community organizations?

So many unanswered questions.

What does the future look like for business with the "Paycheck Fairness Act" on the horizon?

[WhiskeyGirl]

Aren't other minorities affected?  Did Asians get ripped off?  Hispanics?

Isn't it possible that Asians and Hispanics paid less than non-Hispanic whites?

I don't see substance to the lawsuit.  Those African Americans paying higher broker fees could be 100,000 of the 197,000, or just 100 of the 197,000.

The non-Hispanic whites could represent 100,000 of the 197,000, or just 100 of the 197,000.

Where is the statistical breakdown by race?

Did Asians get a better deal than non-Hispanic whites?

If so, where is the discrimination lawsuit and request for payment from Holder?

Is everything about race for Eric Holder?  Or just massive payments if you're African American?

jmho

[WhiskeyGirl]

Why is Holder blaming AIG for the work of independent brokers?

How many brokers wrote that discriminatory business?  How many individuals charged African Americans more?

1 out of 1,000?  2 out of 1,000?  Or, 685 out of 1,000?

Is this the action of a few rogue brokers?  Or, was there a list somewhere charging African Americans more?

Perhaps a number of the 'blacks' paying more were part of a community, social, or religious organization and didn't shop around for a better rate?

Did Holder make any attempt to determine WHY these folks paid more? 

Or, did someone just bend the data and statistics to support a lawsuit?

"Lies, damn lies, and statistics."

[WhiskeyGirl]

What about the mortgage products themselves? What does the breakdown look like based on product and fee structure?

Is there a base charge for say the first $100,000? And a discounted fee schedule after that? In some places, real estate agents might charge 6% for the first $100,000 of home price and say 3% after the first $100,000.

The lower the price of the home, the fee/commission appears to consume a higher percentage of sales price.

As the price of the home rises, the fee/commission appears to consume a lower percentage of sales price.

Apples to Oranges?

(in some of my previous posts, I transposed the number "179,000" .  Sorry.)

[WhiskeyGirl]

Here is a follow-up story -

Weren't the higher fees solely the result of predatory pricing by individual brokers operating independently of their wholesale lenders? If a broker charged African Americans higher fees than whites, wasn't this violation of fair-lending laws on the broker's shoulders?

The Obama administration gave a resounding answer to that question: No. The consent order requires AIG's subsidiaries to pay $6.1 million to about 2,500 African American borrowers, or $2,300 on average for each overcharged loan.

The companies are also required to spend at least $1 million on consumer financial education programs. As part of the settlement, none of the firms admitted wrongdoing. AIG Federal Savings Bank and Wilmington Finance no longer are involved in the wholesale mortgage market. AIG took a $182 billion bailout from the federal government in 2008 and is reorganizing its business activities. No individual mortgage brokers were cited in the case.
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The core message here, according to Justice Department officials, is that lenders who use independent brokers to originate mortgages cannot ignore what those brokers are doing to their minority customers. They will be held responsible for civil rights violations because they should have been monitoring their broker networks for signs of discriminatory pricing, which should be detectable by examining loan packages and performing statistical analyses.

Some mortgage industry groups and lawyers who specialize in financial issues disagree. They argue that holding giant wholesale lenders responsible for illegal acts they did not directly commit not only is unfair but will do long-term harm to all borrowers.

Roy DeLoach, chief executive of the National Association of Mortgage Brokers, said: "We absolutely oppose discrimination in any form. But we think the government's target should be the persons who actually do the discriminating" -- in this case, local brokers, not lenders who acquired the loans with no knowledge of the larger fees.

more here - http://www.washingtonpost.com/wp-dyn/content/article/2010/04/08/AR2010040806443.html

Why aren't Eric Holder and Obama concerned with non-African-Americans who may have paid the same higher fees? 

Why just special racial statistic manipulations for African-Americans?

Is this what keeps them up late?  Deciding that charging some folks more because of the color of their skin is ok?  Charging others more isn't ok?

[WhiskeyGirl]

Another snip from the same article -

"There will be less choice for borrowers," he said. "That inevitably means higher rates and worse terms." DeLoach predicted that only a handful of big banks will dominate the mortgage business. Paul F. Hancock, a lawyer who served for 20 years in the Justice Department's civil rights division and was a deputy attorney general in Florida, said the AIG settlement "is really stretching the law, maybe even going beyond the law" by holding lenders responsible.

Hancock, who specializes in advising financial institutions, added that there is no case law supporting what he called the administration's "aggressive" position. But he said it may prevail because "nobody wants to fight the government."

Look for more fair lending settlements, more financial restitution and much closer supervision of loan officers -- whether they are on lenders' staffs or are independent brokers -- to ensure that every applicant gets equal treatment.

Just like the black panther case, the rules in America under Holder and Obama seem to different based on your race.  If your African-American, you get a get out of jail card free, and folks seem to slice and dice statistics to find ways to make you a victim. 

Did those brokers involved charge everyone the same high rates?  Or, did those brokers just charge African Americans more?

"Lies, damn lies, and statistics" - Obama's truth?