Hudson City Savings Bank Accused of Redlining or Following Racial

Mortgage discrimination against black and Hispanic communities has led to a proposed $32.75 million settlement between Hudson City Savings Bank and the federal government.

The Justice Department defines redlining as the discriminatory practice by banks or other financial institutions to deny or avoid providing credit services to a consumer because of the racial demographics of the neighborhood in which the consumer lives.

This represents the largest redlining settlement in history to provide such direct subsidies.

Hudson City has agreed to settle this matter without contested litigation.

The firm is the target of a $3.7 billion acquisition bid by M&T Bank, which has been delayed by regulators since it was initially announced in 2012.

“We allege that Hudson City’s redlining practices illegally cut off opportunities for consumers in predominantly black and Hispanic neighborhoods to get a mortgage and achieve the dream of home ownership”, said CFPB Director Richard Cordray. (Credit: AP) The Consumer Financial Protection Bureau and the U.S. Department of Justice allege that the Hudson City Bancorp Inc. subsidiary avoided placing branches or work…

It said the complaint against Hudson City alleged the company engaged in relining “from at least 2009 to 2013”, all across its business area including New Jersey. It would also owe $2.25 million for community programs and outreach and $5.5 million in penalties.

Federal officials reached a settlement with Hudson City Bancorp Inc. over allegations that the Paramus, N.J., lender intentionally withheld mortgages from minorities, signaling renewed interest in an area that drew focus decades ago. “There is no room for such behavior in our banking system”, U.S. Attorney Paul Fishman stated.

“This case should send a message to lenders throughout the country that the Justice Department will not tolerate racial discrimination in the extension of credit”, said Principal Deputy Assistant Attorney General Vanita Gupta, the head of the Justice Department’s Civil Rights Division, in a statement. In the Bank’s view, providing additional liquidity to originators active in these areas through loan purchases is critical to meeting the credit needs of these communities.

The loan subsidy program that comprises the bulk of the Hudson City settlement will make mortgage loans more affordable for residents of black and Hispanic neighborhoods in the four states, officials said.

The government also alleged that the bank’s network of brokers, which accounted for 80 percent of mortgage applications, were located outside of black and Hispanic neighborhoods. For example, Hudson City’s assessment area near Philadelphia and Camden excluded all 337 neighborhoods with a majority of Black and Hispanic residents. In June, however, the Supreme Court, for the first time ever, affirmed that federal agencies and fair-housing groups could continue the long-standing practice of using the theory of “disparate impact” to bring cases against lenders when their policies and practices, however color blind on the surface, produce discriminatory outcomes.