Are there any fair lending issues with substantially increasing our mortgage loan marketing and other outreach efforts in minority neighborhoods and through media outlets that have predominantly minority readers/listeners in an effort to improve our lending volumes in those areas? This would include our standard mortgage products as well as our first-time homebuyer and other affordable mortgage products. While it's clear that the bigger fair lending risk would be if these groups and neighborhoods were under represented in our efforts, I want to make sure we don't cause other problems.

I'm thinking of the fact that the fair lending laws prohibit discriminating based on race or ethnicity either in a positive manner as well as a negative manner, unless it's within a Special Purpose Credit Program under Reg B.

Any help would be appreciated.

We have done that and with no criticism. It is used in conjunction with other marketing efforts to blanket our
entire assessment area. But one large mailing was specific to low to mod and majority minority areas.

I think I remember one "reverse discrimination" case several years back that was pretty blatant. The bank's policy basically said give better rates and terms to black people to avoid fair lending issues, and they were cited for fair lending.

Aside from something that blatant, I don't think you'd run into any issues marketing toward a minority group or LMI population. Just make sure if you are advertising in a language other than English, you have the staff to support non-English speaking borrowers. You don't want to run into an issue of have one Spanish speaking employee in the whole area, but marketing in Spanish.

Also take a look at what products you're marketing. There were a number of allegations of reverse redlining or steering after the mortgage crisis because products advertised heavily in minority neighborhoods had less advantageous features than products offered in other neighborhoods.

Thanks for all the responses! As a follow up question, what if these increased marketing and outreach efforts focused more heavily on one minority group. Specifically, there's a focus across the industry on expanding black homeownership, and we want to step into this in some meaningful ways. Would we have fair lending issues with regulators if we do this without taking similarly focused actions for other races or ethnicities?

I realize that we'll also need to consider the possible responses from community groups who focus their efforts on other races or ethnicities. But I primarily want to make sure we understand the regulatory perspective on this.

Thank you.

I would target Majority-Minority tracts rather than persons. Reg B has guidelines for special purpose lending programs (https://www.bankersonline.com/regulations/12-1002-008) but it can be a slippery slope.

Even if we focus on tracts rather than persons there's still the question of which Majority-Minority tracts. If we focus on those MMTs that are predominantly African American without creating a special purpose credit program per Reg B, are we at risk of creating fair lending issues if we don't do as much to focus on other MMTs that are predominantly Hispanic, or Asian, for example?

IMHO - When the bank analyzes their performance, is the lending to predominantly Black MMT lower than the others? The challenging part is that illegal discrimination, no matter to which group, is against the law. There are certain special purpose lending programs allowed per 1002.8, but to target one group because a regulator is keen on Black borrowers now could create a huge issue if there is no documentation as to WHY they are being targeted. Picture if a newly elected Hispanic director for the CFPB, starts looking at records and sees where other races got preference over Hispanics. Regulators (generally) will not tell a lender how to make loans and accept what a lender does, as long as it is fully documented and not (intentionally) discriminatory. (See "Effects Test".)

Our lending performance may be lower in Black MMTs compared to other races or ethnicities when viewed on the aggregate across all our lending areas, but it wouldn’t be the case in every assessment area when viewed separately. Would this lower performance on the aggregate level be a valid basis for marketing more heavily to Black communities?

I should also clarify that these focused efforts would be based on general fair lending program goals plus broader societal issues of racial equity. I didn’t mean to suggest that it’s in response to any regulators currently focusing on one minority group over any others. We may also end up developing special purpose credit programs under 1002.8, but first I’m trying to find out whether we’d create fair lending risks as a result of the stepped up marketing and community outreach efforts separate from any 1002.8 special programs.

When you are looking at "underserved" tracts, you also need to look at the housing availability. We've seen in some MMT where the rental housing exceeds the owner occupied housing. There are expectations that OO housing will be bought and sold as people move, and have potential for refinances and home improvements. Rental housing however is an investment, and usually not something financed.

As an example, for 13 MM tracts in 2 Florida counties: (rounded)
Total Housing 25,900
Occupied 21,400
Vacant 4,800
Owner Occupied 10,100
Renter Occupied 11,400 (44% of the housing in the tracts)

Out of the 25,900 units, there is minimal possibility for lending in 11,400, therefore cutting down almost in half the potential for lending.

Our analysis of HMTs and MMTs looks at that data as well as peer lending activity and other factors. And while it may be ideal to have a number of approaches tailored to each underserved area, that can be pretty challenging.

So what I'm trying to figure out is this: If a bank makes a concerted effort to increase marketing and other outreach (using their regular products without a 1002.8 special program) to one race or ethnicity based on analysis showing lower application or loan activity from that group in general, are they going to cause fair lending risks if they don't do something similar for other races or ethnicities who may also have lower activity in some of their assessment areas?

Thanks.