CFPB Issues Compliance Bulletin/Admonition to Mortgage Lenders

The CFPB has issued a compliance bulletin directed to mortgage lenders.  In Bulletin 2015-02, the Bureau targets disparate treatment and “reminds” creditors of their obligation to provide non-discriminatory access to credit for mortgage applicants using income derived from the Section 8 Housing Choice Voucher Homeownership Program.  The Bulletin appears to stem from the Bureau’s identification of two issues: (1) institutions excluding or refusing to consider income derived from Section 8 HCV vouchers during the mortgage loan application and underwriting processes; and (2) institutions restricting the use of vouchers to certain home loan mortgage loan products or delivery channels.

The Section 8 HCV Homeownership Program is funded by HUD and was created to assist low-income first time homebuyers in purchasing homes.  Under the Program, eligible consumers may be provided with a monthly housing assistance payment to assist with the homeownership expenses associated with a housing unit purchase in accordance with the HUD regulations.

Under the Equal Credit Opportunity Act (“ECOA”) and Reg B, creditors are prohibited from discriminating in any aspect of a credit transaction against an applicant “because all or part of the applicant’s income derives from any public assistance program.”  Public assistance payments include “mortgage supplement or assistance programs.”  The Section 8 HCV vouchers, therefore, are considered public assistance payments for purposes of ECOA and are protected under ECOA.  Under Reg B, a creditor from may not automatically discount or exclude protected information from consideration  and can only discount or exclude protected income based on the applicant’s actual circumstances.

The Bulletin cautions lenders against disparate treatment emanating from a creditor either excluding Section 8 HCV vouchers as a source of income or from accepting the vouchers only for certain mortgage loan products.  The Bureau notes that ECOA and Reg B may be violated “if an underwriting policy regarding income has a disproportionately negative impact on a prohibited basis, even though the creditor has no intent to discriminate and the practice appears neutral on its face, unless the creditor practice meets a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact.”

The Bureau counsels lenders to take the following steps:

• Clearly articulate their underwriting policies regarding income derived from public assistance programs;
• Provide proper training to their underwriters, originators and others involved in the mortgage loan origination concerning public assistance payments; and
• Carefully monitor for compliance with such underwriting policies.