State financial regulators cited Buffalo-based Hunt Mortgage Corp. on Thursday for weakness in lending to minorities and minority neighborhoods, as they released a report finding an overall lack of lending by nonbank mortgage companies in Buffalo despite laws banning the practice of redlining.
The report by the State Department of Financial Services found a "distinct lack of lending" by mortgage lenders particularly nonbanks in Buffalo, which remains one of the most segregated cities in America.
According to the report, while 17% of the region's population is Black or Hispanic, just under 10% of the loans went to minority borrowers, based on data from 2016 to 2019 provided under the Home Mortgage Disclosure Act.
And nonbank lenders lent money in mostly minority neighborhoods at a lower rate than banks.
State regulators found that several lenders "made little to no effort" to do business in those neighborhoods. Those lenders also did not track "whether or how well" they serve minority populations, and don't have "adequate fair lending compliance programs," the report found.
"The findings of this report are particularly troubling," said Linda A. Lacewell, superintendent of financial services. "Homeownership is a critical path to building wealth and economic stability, and the data is clear families of color, particularly African Americans, do not have equal access to mortgage lending in Buffalo compared to white households."
As part of its report on redlining in Buffalo, the state agency is investigating several lenders, but only specified Hunt on Thursday. The state didn't directly accuse Hunt of redlining or "intentional discrimination" and said it did not find evidence that the company violated any laws.
But the agency found that the company's compliance programs and fair lending efforts had weaknesses. And the department suggested that a "lack of sufficient attention to fair lending issues contributed to the company's poor performance in lending to people of color and in majority-minority neighborhoods."
Hunt is a subsidiary of Hunt Real Estate Corp., the region's No. 2 real estate brokerage firm, and by extension a major provider of mortgages for its brokerage customers.
The state said that the firm, in "a good faith effort," agreed to increase its marketing to minorities and mostly minority neighborhoods, and to develop a special financing program to provide $150,000 in discounts or subsidies on loans for properties in mostly minority communities.
It also agreed to provide annual training in fair lending practices to its employees and agents, and to conduct an annual compliance audit of its fair lending efforts.
"We appreciate the state's findings of no wrongdoing by Hunt Mortgage, and we feel as an industry, we should do everything possible to help every U.S. citizen achieve the goal of homeownership," said Hunt Mortgage CEO Linda C. Mallia. "We see this as an opportunity to implement programs to strengthen our service in all of our communities, especially those that are underserved. We are looking at this as a positive to help."
Lawmakers were hardly surprised by the report's findings. "I live it every day," said Assemblywoman Crystal Peoples-Stokes, a Buffalo Democrat, of constituents' concerns about being cut out from home ownership opportunities.
Sen. Sean Ryan, D-Buffalo, said the new report shows that redlining is an ongoing problem for the city.
"The way Buffalo looks today didn't just happen. Our segregated neighborhoods are the direct result of redlining," said Ryan, a member of the Senate Housing Committee, and a former housing activist. "Redlining may have been officially banned long ago, but discriminatory policies run deep throughout the city of Buffalo."
The report and investigations follow a State of the State proposal by the Cuomo administration to increase homeownership rates and access to mortgages in communities harmed by redlining. Redlining is the illegal practice by companies of refusing to do business in a particular neighborhood based on its racial or ethnic makeup, or discriminating by imposing harsher terms in those areas, such as higher rates.
The report noted that about 36.7% of Buffalo's population is Black and 11.6% is Hispanic, while the metro area is 12% Black and 5% Hispanic. It also cited a statistic that 85% of people who identify as Black live east of Main Street, in areas that were historically subject to redlining in the 1930s.
Mortgage lending is also increasingly dominated today by nonbank lenders, which originated 37% of the mortgages in Buffalo and more than half nationwide from 2016-2019. Unlike banks, they are not subject to the federal or state Community Reinvestment Act.
The report recommended that the state law be extended to nonbanks, and also called for federal bank regulators to investigate banks under their purview for fair lending violations in Buffalo. It also urged the State Department of State to probe real estate agents that several nonbank lenders relied upon for referrals.
Senator Tim Kennedy, a Buffalo Democrat, is already looking to introduce legislation to apply a state law aimed at reducing discrimination in the lending sectors to all mortgage entities, not just banks and other depository lenders.
"Redlining is an exceptionally devastating form of institutionalized racism that has persisted for decades in this country and in the City of Buffalo," said Kennedy, a member of the Senate banking committee.
Mallia said Hunt supports those changes. "It will level the playing field," she said. "It will make it clear what the expectations are."
Hunt isn't the only lender that struggles with lending to minorities. Fifteen of the 22 lenders on the DFS ranking were also below 5%, including Rochester-based Premium Mortgage Co. and First Priority Mortgage, a subsidiary of Howard Hanna Real Estate Services, as well as several banks and credit unions that aren't regulated by the state.
By contrast, Evans Bank, Five Star Bank and M&T Bank topped the state report's ranking. Evans and Five Star had previously settled allegations of redlining in Buffalo and Rochester, while a predecessor to M&T did so in New Jersey.
The agreement with Hunt followed a review of the company's publicly available date for lending in Buffalo and Syracuse from 2016 through 2019. DFS found that Hunt originated 4,123 residential loans in the Buffalo metropolitan area, but only 4.71% or 194 loans were to Black or Hispanic applicants. Also, only 91 loans or 2.21% were made to purchase properties in mostly minority areas, and only 23 of those went to a minority applicant.
In Syracuse, Hunt originated 880 loans in the same time period. Of those, 43 or 4.89% went to a Black or Hispanic applicant, while 14 or 1.59% went for a purchase in a minority neighborhood, and only three of those were to a minority borrower.
Those numbers prompted a more formal investigation into the firm's practices, procedures and compliance, including its marketing materials and policies and its underwriting, DFS said. Hunt also provided additional data, but the state agency said that only "confirmed the demonstrable lack of lending" to minorities and minority neighborhoods, according to the agreement.
As part of the settlement, Hunt will evaluate its compliance and update its policies and procedures, while also clearly defining its mortgage service area to include the Buffalo, Rochester and Syracuse metropolitan areas. It will introduce credit and pre-application counseling, and a consumer complaint policy.
It will also direct 25% of its marketing and advertising to minorities and minority neighborhoods, and will track those efforts. And it will spend $50,000 on outreach and promotions designed to reach those applicants, including posters, billboards, brochures, direct mail and online advertisements, as well as specific in-person events as allowed under the pandemic.
