Meta to settle with DOJ over Fair Housing Act claims

Meta to settle with DOJ over Fair Housing Act claims
Meta Platforms, formerly known as Facebook Inc., agreed to settle allegations that its in-house advertising system discriminates in choosing which users receive housing ads, the Department of Justice announced on Tuesday.

The department claims that Meta’s housing advertising system uses a “discriminatory algorithm” that is preferential toward certain demographics over others. The DOJ said that this violates the Fair Housing Act.

Per the settlement, the social media giant has until Dec. 31, 2022 to overhaul its “special ad audience” tool and develop a new tool that is more inclusive. The new system will be subject to approval from the DOJ.

Additionally, Meta will be required to pay a civil penalty of $115,054 for violating the Fair Housing Act.

A spokesperson from Meta said in a statement that in light of the settlement, the company will innovate how advertising gets delivered to a user.

“We will be building a novel machine learning method within our ads system that will change the way housing ads are delivered to people residing in the US across different demographic groups,” the Meta spokesperson said.

The government’s lawsuit, filed earlier this week, alleges that the company “enabled and encouraged” advertisers to target housing ads by relying on the race, color, religion, sex, disability, familial status and national origin of a Facebook user as metrics to decide who is eligible and ineligible to receive housing ads.

The DOJ also said that Meta’s ad delivery system uses machine-learning algorithms that help determine which subset of an audience receives a housing ad, relying on race, national origin and gender. These characteristics are protected by the Fair Housing Act, the department said.

Kristen Clarke, assistant attorney general at the DOJ, said in a statement that going forward, companies need to be mindful of how they implement algorithmic tools.

“This settlement is historic, marking the first time that Meta has agreed to terminate one of its algorithmic targeting tools and modify its delivery algorithms for housing ads in response to a civil rights lawsuit,” Clarke said. “The Justice Department is committed to holding Meta and other technology companies accountable when they abuse algorithms in ways that unlawfully harm marginalized communities.”

The Department of Housing and Urban Development referred the matter to the Justice Department for litigation, the DOJ noted. In 2019, HUD alleged that Meta’s ad delivery system violated the Fair Housing Act.

The current agreement between Meta and the DOJ is contingent on approval from the U.S. District Court for the Southern District of New York, where the government filed its lawsuit against the media giant earlier this week.

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UWM drops rates 50 to 100 basis points in bid for brokers

UWM drops rates 50 to 100 basis points in bid for brokers
United Wholesale Mortgage (UWM), the nation’s largest wholesale lender, wants to beat rival lenders by offering competitive pricing to brokers, a move designed to navigate a shrinking mortgage market with compressed margins.

UWM dropped rates by 50 to 100 basis points across all loan types, the company said in a release. The new program follows UWM’s two-month price-match trial that ended Wednesday. In May, the firm said it will match competitors’ 30-, 45-, or 60-lock pricing by 1 basis point to a maximum of 40 basis points. 

UWM’s price-matching guarantee included competitors such as Amerisave, Amwest Funding, NewRez/Caliber Home Loans, Cardinal Financial, Carrington Mortgage Services, Citizen Bank/Franklin American, CMG, Equity Prime Mortgage, Finance of America Mortgage, Flagstar Bank, Freedom Mortgage Corp., Homebridge Financial Services, Home Point Financial, Kind Lending, LoanDepot, Nations Direct Mortgage, Paramount Residential Mortgage Group, PennyMac Financial, Plaza Home Mortgage and Union Home Mortgage Corporation.

“This strategic pricing move is two-fold; it takes the guesswork out of where a broker should place a loan and accelerates retail loan officers joining the wholesale channel as it further extends independent mortgage brokers’ advantage over retail,” said Mat Ishbia, president and CEO at UWM.

UWM has aggressively put pressure on competitors. In June 2021, UWM announced a price-match up to 30 bps with 15 competitors on any conventional loan for a primary residence, after it told brokers they could not work with Rocket Pro TPO and Fairway Independent Mortgage if they wanted to work with UWM. 

The move likely contributed to lower margins in the short term but in the first quarter of this year UWM saw gain-on-sale margins rise to 0.99%, compared to 0.80% in the fourth quarter of 2021. 

In the first three months of this year, UWM reported a profit of $453.2 million, up 89% from the $239.8 million in the last quarter of 2021. While loan originations dropped 29.7% from the previous quarter to $38.8 billion in the first quarter of 2022, purchase loans grew to consist of 49% of the total origination volume to $19.1 billion.

Moody’s projects intense competition among lenders over the next 24 months in which gain-on-sale margins will drop even further. In March, Moody’s analysts wrote profitability may resemble the market in 2018 when about one-third of nonbank lenders reported a loss. 

“Companies with above-average capitalization, strong market positions, and scale will be better able to navigate the challenging operating environment,” the Moody’s analysts said. 
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OCC used “outdated, unclear” guidance for redlining exams

OCC used “outdated, unclear” guidance for redlining exams
A congressional watchdog determined a federal agency responsible for overseeing national banks — the Office of the Comptroller of the Currency (OCC) — has followed procedures “inconsistently” and used “outdated” and “unclear” guidance when examining banks for potential instances of redlining.

Democratic lawmakers Rep. Joyce Beatty of Ohio, Rep. Gregory Meeks of New York and Rep. Emanuel Cleaver of Missouri asked the Government Accountability Office (GAO) to review the OCC’s fair lending oversight. The GAO found that the regulator followed policies when it reviewed banks’ underwriting, including credit decisions, and interest rates and fees. But when it came to redlining exams, the congressional watchdog found irregularities.

“Our review of selected examinations found that examiners followed procedures inconsistently when assessing potential redlining, and OCC’s examiner guidance is outdated and unclear on the steps examiners need to take when conducting redlining reviews,” the GAO wrote.

The GAO also tracked the number of fair lending examinations the OCC performs each year, finding they have dropped off significantly since 2018. In the seven years leading up to 2018, the OCC performed about 140 exams, on average, per year. In the years since, that has declined to 50 per year, on average, with only 23 exams performed in 2021.

The decline in fair lending examinations coincided with changes the OCC made to the way it screened banks for potential lending disparities. Before 2018, any banks with a statistically significant number of potential lending disparities evident in its public mortgage lending data disclosures wound up on the screening list. Starting in 2018, however, the OCC only included banks with potential disparities for three consecutive years.

In 2018, the OCC also stopped randomly selecting lending activities for annual screening lists.

The GAO report said, “while OCC’s updated process contributed to more targeted examinations, it also led to fewer opportunities to examine smaller banks’ fair lending practices and identify deficiencies.”

In a statement, an OCC spokeswoman said the 2018 changes allowed the agency to be more efficient.

“The changes made to our annual process for screening bank retail lending activities enabled the agency to provide more targeted examinations and to better deploy resources to identify weaknesses and wrongdoing,” an OCC spokeswoman said. “This risk-based approach has resulted in more focused examinations on activities that have an elevated fair lending risk.”

In response to the GAO report, the OCC said it would update guidance for redlining examinations and develop examiner training. The training will include live, multi-part, agency-wide webinars, which it will hold by the end of September. The OCC also said it would develop a centralized process and procedures to analyze fair lending activities, including examination selection decisions and outcomes, by year end.

Addressing the legacy of redlining, which was formally outlawed more than 50 years ago, recently has become a key focus of federal housing policy discussions.

In recent years, community groups such as National Community Reinvestment Coalition have negotiated community benefits agreements with banks totaling $500 billion since 2016, by seizing on regulatory reviews of mergers to allege the banks redlined.

The federal government also has signaled it will intensify its focus on redlining enforcement. The Department of Justice, the OCC and the Consumer Financial Protection Bureau in October 2021 announced a joint effort to combat “modern-day redlining.”

The DOJ also has begun pursuing redlining enforcement actions, without first waiting for a banking regulatory agency to make a referral, according to reports from Inside Mortgage Finance.

Regulatory changes that could address the affects of redlining also are underway.

All three federal banking regulatory agencies recently proposed a major update to the Community Reinvestment Act, which originally was passed to combat redlining. It would be the first significant update to the law in decades.
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JPMorgan Chase to cut hundreds of mortgage jobs

JPMorgan Chase to cut hundreds of mortgage jobs
JPMorgan Chase, the nation’s largest bank, has started a workforce reduction of its mortgage lending business this week after having been struck by a tightening monetary policy that drove mortgage rates to over 6%.

“Our staffing decision this week was a result of cyclical changes in the mortgage market,” a spokeswoman for JPMorgan wrote in a statement on Wednesday. 

“We were able to proactively move many impacted employees to new roles within the firm and are working to help the remaining affected employees find new employment within Chase and externally.”

The spokeswoman did not confirm how many employees were laid off or moved to different divisions and their job positions. Bloomberg reported first on the topic. Citing sources, it mentioned the total affected will be about 1,000 workers, with about half target of a layoff and the other half moving to different divisions within the bank. 

The Jamie Dimon-led bank layoffs come two months after competitor Wells Fargo & Co., the top depositary mortgage lender in the country, cut jobs in its home lending business, among them hundreds of mortgage processors. 

Nonbank lenders such as Pennymac, Mr. Cooper, loanDepot, Guaranteed Rate, Fairway Independent Mortgage, Interfirst Mortgage Co., Movement Mortgage, and Better.com all conducted at least one round of workforce reductions this year as mortgage rates surged past the 5% mark.

With mortgage rates jumping to the 6% level after the Federal Reserve raised the federal funds rate by 75 basis points last week, a rate hike not seen since 1994, more layoffs are expected by industry observers.

At JPMorgan, the fifth-biggest mortgage lender in the country, the mortgage business shrank in the first quarter.

Origination volume totaled $24.7 billion from January to March, a decline of 41% compared to the prior quarter and down 37% in comparison with the first quarter of 2021. Home lending net revenue reached $1.2 billion in the first quarter, down 20% compared to the same quarter in 2021. However, compared to the fourth quarter of 2021, it increased 8%.  

Dimon, chairman and chief executive officer at JP Morgan, told analysts after the first-quarter earnings came out that he expected some difficult days ahead due to factors such as inflation and the war in Ukraine. “Those are storm clouds on the horizon that may disappear; they may not. That’s a fact,” he said.  

On the bright side, he said customers still have $2 trillion in their savings and checking accounts, businesses are in good shape, home prices are up, and credit is extraordinarily good, which will continue in the second and third quarters. 
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Flagstar reports data breach affecting 1.5 million clients

Flagstar reports data breach affecting 1.5 million clients
Hackers stole the personal information of 1,547,169 clients of Michigan-based Flagstar Bank in December, according to a document sent by the financial institution to the Office of the Maine Attorney General.

The cyberattack occurred on Dec. 3 and Dec. 4, 2021, but the company discovered it on June 2, 2022, the document shows. The external data breach resulted in hackers accessing customers’ social security numbers. 

“For those impacted, we have no evidence that any of their information has been misused,” Flagstar’s spokesperson Susan Bergesen said in an email. “Nevertheless, out of an abundance of caution, we are offering complimentary credit monitoring services.” 

Flagstar Bank said they activated a response plan, engaging some external cybersecurity professionals experienced in handling these incidents, and reported the matter to federal law enforcement. 

The company is notifying individuals who may have been impacted directly via U.S. mail. 

The data breach happened amid the acquisition of Flagstar. In April 2021, New York Community Bank, one of New York City’s largest multifamily lenders, announced the acquisition of Flagstar Bancorp, the parent company of Flagstar Bank, in an all-stock merger valued at $2.6 billion.

After one year, in April 2022, the banks announced they mutually extended their merger agreement to Oct. 31, 2022, to provide that the combined company will operate under a national bank charter.

Under the new agreement, the merger needs the approval of the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC). 

New York Community Bank essentially exited the residential mortgage banking business in 2017 after selling its origination and servicing platforms. With Flagstar, it is entering a shrinking mortgage market. 

Flagstar Bancorp has reduced its mortgage staff by 20% this year, laying off 420 employees amid a significant drop in origination volume and margins. 

The bank’s net income in the first quarter of 2022 dropped 60.4% from the prior quarter to $53 million. Mortgage revenue decreased $36 million in the same period to $74 million from January to March.
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