DC-353673.10
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA, )
)
)
Plaintiff, )
)
)
v. ) Civil No. CV 00 1872
)
DELTA FUNDING CORPORATION, and )
DELTA FINANCIAL CORPORATION )
)
Defendants. )
)
)
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SETTLEMENT AGREEMENT AND ORDER
The United States of America, through the United States Department of
Justice and on behalf of the Secretary of Housing and Urban Development and the
Federal Trade Commission, and Delta Funding Corporation ("Delta Funding") and
Delta Financial Corporation (except where otherwise noted, both defendants are
collectively referred to as "Delta" or "the lender") have agreed to enter into
this Settlement Agreement simultaneously with the filing of the United States of
America's Complaint (the "Complaint") alleging that Delta has violated the Fair
Housing Act (42 U.S.C. xx.xx. 3601-3619)("FHA"), The Equal Credit Opportunity
Act (15 U.S.C. xx.xx. 1691-1691f) and its implementIng Regulation B (12 C.F.R.
Part 202) (collectively, "ECOA"), the Home Ownership and Equity Protection Act
of 1994 (15 U.S.C. ss. 1639) and its implementinG Regulation Z (12 C.F.R. xx.xx.
226.31 - 226.32) (collectively, "HOEPA"), and The Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. ss. 2601 - 2617) anD its implementing
Regulation X (24 C.F.R. Part 3500) (collectively, "RESPA"), all as amended. This
Settlement Agreement resolves fully all claims in the United States' Complaint.
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I. INTRODUCTION
This case is brought by the United States to vindicate the rights of
persons whom the United States claims were injured by alleged violations of the
fair lending, fair housing and consumer protection laws and regulations, as set
forth above. The Complaint alleges that Delta is engaged in the business of
making subprime home mortgage loans; that a large part of its business is
concentrated in the minority residential areas of Kings and Queens Counties, New
York; that the majority of its loans are refinancing loans for the purpose of
debt consolidation; that the majority of its borrowers in these counties are
presented to Delta by mortgage brokers; that brokers submitting loans to Delta
charge up to 10% of the loan amount as a "broker fee," unless state law provides
for a lower amount; and that, during the period January 1996 through December
1998, approximately 17.5 percent of Delta's loans in Kings and Queens Counties,
New York were high fee loans covered by XXXXX.
The United States alleges that Delta violated ECOA and FHA by approving
and funding loans with disparate broker fees that resulted in African American
female borrowers being charged more on average than white male borrowers were
charged and that the higher prices charged to African American females were not
based on differences in risk of repayment. The United States does not claim that
Delta discriminated in charging borrowers disparate fees that were set by Delta,
but rather in acceding to the discretionary prices that were charged by mortgage
brokers for the loans made by Delta.
The United States alleges that Delta violated RESPA because it contends
that in certain cases the fees received by mortgage brokers were not for
services actually performed or were higher than an amount reasonably related to
the value of goods and facilities provided and services performed, and, as such,
constituted illegal payments for the referral of mortgage loan business or
unearned fees.
The United States alleges that Delta Funding violated HOEPA because it
contends that Delta made certain loans based on borrowers' equity in their homes
rather than the borrowers' ability to repay the obligation, and included
prohibited prepayment and increased interest rate default provisions in certain
HOEPA loan documents.
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The allegations of the Complaint concern the period January 1996 through
December 1998, during which Delta made more than 5,000 home mortgage loans to
borrowers in Kings and Queens Counties, New York. Delta conducts its home
mortgage lending business in more than 20 states other than New York, but almost
half of its lending is in that state.
Delta denies all allegations in the United States' Complaint and that any
of its actions have constituted violations of the ECOA, FHA, RESPA, HOEPA or any
other fair housing, fair lending or consumer protection law. In particular,
Delta disputes the validity of the statistical analyses the United States relied
upon as the principal basis for its ECOA and FHA claims, because Delta's own
analyses did not reveal statistically significant differences in the prices paid
by borrowers in protected classes. Delta further maintains that the United
States' theories of liability regarding loans brought to it by mortgage brokers
are legally insupportable, because, inter alia, they seek to hold a lender
responsible for the conduct of independent third parties.
Delta disputes the United States' RESPA claims, and maintains that the
broker compensation at issue in the Complaint was reasonably related to the
value of the goods, facilities and services provided by brokers in similar
transactions in similar markets.
Delta also disputes the United States' HOEPA claims, and contends that it
underwrites all of its loans, including loans covered by HOEPA, based on the
borrower's ability to repay, and does not contract for or charge prohibited
prepayment penalties or default interest on HOEPA loans.
Although Delta disputes each of the United States' allegations, it is
nevertheless committed to furthering the spirit of fair lending and other
consumer credit laws by going beyond what Delta believes is required under
applicable law to remedy the violations alleged in the Complaint.
II. RESOLUTION OF THE DISPUTE
The parties have agreed that in order to avoid costly litigation, this
controversy should be resolved voluntarily, and that the terms of this
Settlement Agreement shall govern Delta's practices in all geographic areas in
which Delta makes loans. The parties have also agreed that
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there should be no evidentiary hearing, trial or other adjudication on the
merits, and that entry of this Settlement Agreement is not to be construed as
an admission by Delta of the validity of the claims asserted against it.
Now therefore, on the basis of the foregoing representations of the United
States and Delta, Delta, its officials, and employees, as well as their
successors, collectively referred to as "Delta", are hereby ORDERED as follows:
III. GENERAL PROVISIONS
A. Delta is prohibited from engaging in any act or practice that discriminates
on the basis of sex, race, or color in the pricing of mortgage loans as
prohibited by FHA and ECOA, including but not limited to approving and funding
loans for which minorities and females pay more than similarly situated whites
or males.
B. Delta is prohibited from violating Section 8 of RESPA and Section 3500.14 of
its implementing regulations, and agrees to conduct its dealings with mortgage
loan brokers in a manner consistent with HUD's Statement of Policy 1999-1
Regarding Lender Payments to Mortgage Brokers (64 Fed. Reg.
10080, March 1, 1999).
C. Delta Funding is further prohibited from violating HOEPA (15 U.S.C.
ss. 1639), and Sections 226.31 and 226.32 of Regulation Z, 12 C.F.R. xx.xx.
226.31 and 226.32, by:
1. engaging in a pattern or practice of extending credit to borrowers based on
the borrowers' collateral rather than considering the borrowers' current or
expected income, debt or employment status to determine whether the
borrowers are able to make the scheduled payments to repay the obligations,
in violation of Section 129(h) of HOEPA, 15 U.S.C.ss.1639(h), and Section
226.32(e)(1) of Regulation Z, 12 C.F.R.ss.226.32(e)(1);
2. including in a HOEPA mortgage loan a prohibited prepayment penalty
provision, in violation of Section 129(c) of HOEPA, 15 U.S.C. ss. 1639(c),
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and Section 226.32(d)(6) of Regulation Z, 12 C.F.R. ss. 226.32(d)(6); and
3. including in a HOEPA loan a default provision calling for increased
interest rate after default, in violation of Section 129(d) of HOEPA, 15
U.S.C. ss. 1639(d), and Section 226.32(d)(4) of Regulation Z, 12 C.F.R. ss.
226.32(d)(4).
IV. REQUIRED POLICIES AND PRACTICES CONCERNING DELTA'S BUSINESS DEALINGS
WITH MORTGAGE BROKERS
A. COMPLIANCE WITH THIS SETTLEMENT AGREEMENT
To promote the objectives of ECOA, FHA, RESPA AND HOEPA in connection with
its wholesale lending operations, Delta shall conduct its business with mortgage
brokers as follows:
1. With respect to fair lending, Delta shall:
a. adhere to the FHA and ECOA in all aspects of the credit process
including pricing of mortgage loans;
b. reject the broker's proposal or make a counteroffer when it believes
the broker's proposed compensation and costs are not permitted under
the fair lending laws; and
c. maintain loan underwriting standards designed to ensure that loan
applicants will be placed at the correct credit risk level on a
non-discriminatory basis.
2. With respect to real estate settlement procedures, and consistent
with HUD's Statement of Policy 1999-1 Delta shall:
a. only fund loans where it reasonably believes the compensation
to the mortgage broker is made in exchange for services actually
performed and goods and facilities actually furnished by the broker
and the broker's total compensation is reasonably related to the
services performed and the goods and facilities provided by the
broker;
b. operate on the understanding that (i) payments to mortgage brokers
by Delta for referral of business are not permissible
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and (ii) referral fees are not payments for goods, facilities or
services;
c. where necessary to arrive at an overall mortgage broker compensation
that is reasonably related to the services performed or the goods
and facilities provided by the mortgage broker, reduce or eliminate
its yield spread premiums or other back-end fees, propose a reduction
in the mortgage broker's front-end charges or take other action.
Delta shall decline to fund the loan if the overall mortgage broker
compensation is not reasonably related to the services performed or
the goods and facilities provided by the mortgage broker;
d. refrain from providing, in exchange for the referral of business,
those settlement services for which the mortgage brokers are
receiving compensation; and
e. modify all its existing agreements with mortgage brokers within 60
days of the date of this Settlement Agreement to contain, and
ensure that all future agreements with mortgage brokers contain, a
provision that the mortgage brokers will make timely
disclosures to borrowers concerning the broker's services
and compensation, to the extent required by state law, and, within
60 days of the date of this Settlement Agreement, Delta shall provide
further disclosure, in the form of ATTACHMENT A hereto (the
"Broker Information Disclosure") to each borrower from whom Delta
receives a loan application. Delta shall provide the Broker
Information Disclosure no later than three business days after
the loan application is received by Delta.
3. With respect to loans covered by XXXXX proposed by brokers, Delta shall:
a. reject the broker's proposal when it believes the broker's proffered
documentation of the borrower's income is insufficient to support
the amount of income claimed;
b. maintain loan underwriting standards designed to ensure that
extensions of credit are based on the borrower's repayment ability
including the borrower's current and expected income, current
obligations, and employment; and
c. maintain loan underwriting procedures designed to ensure that any
borrower's income will be verified and documented to establish
a reasonable basis to believe such income exists.
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B. NOTICE TO MORTGAGE BROKERS CONCERNING COMPLIANCE WITH THIS SETTLEMENT
AGREEMENT
1. Within 60 days of the date of this Settlement Agreement, Delta shall
notify each mortgage broker with which it does business of the compliance
requirements set forth in paragraph IV.A, and shall revise the materials
it provides to all brokers to include the following statements:
a. "The Fair Housing Act and the Equal Credit Opportunity Act apply to
all aspects of the credit process including the pricing of mortgage
loans;"
b. "It is unlawful to make differing initial price quotations
on the basis of the loan applicant's race, national origin, sex, or
age;"
c. "The Real Estate Settlement Procedures Act prohibits compensation to
a mortgage broker unless the compensation is in exchange for services
actually performed and goods and facilities actually furnished by
the broker, and the mortgage broker's total compensation is
reasonably related to the value of the services performed and the
goods and facilities furnished by the broker;" and
d. The Home Ownership and Equity Protection Act of 1994 prohibits
the making of non-purchase money mortgage loans that have total
points and fees that exceed eight percent of the total loan amount
without regard to the borrower's ability to repay. Accordingly,
all loans subject to HOEPA must be supported by credible
documentation that the borrower is able to repay the loan.
2. In addition, Delta shall offer all wholesale brokers with whom it
does mortgage loan business the opportunity to undergo training
similar to the training described in Section VII.
V. MONETARY COMPENSATION
On September 17, 1999, the Superintendent of Banks of New York State
("NYSBD") and Delta entered into a Remediation Agreement resolving NYSBD's
allegations that its examination of Delta's lending practices revealed
violations of the FHA, ECOA, RESPA and HOEPA
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and Section 296-a of the New York Executive Law. The settlement includes a
$7,250,000.00 "Remediation Fund" by Delta and an "Amelioration Fund" consisting
of 525,000 unregistered shares of common stock ("Stock") of Delta Financial
Corporation. The "Remediation Fund" and the proceeds from the sale of the Stock
in the "Amelioration Fund" shall be used to compensate borrowers identified by
the NYSBD and the federal agencies.
One of the purposes of the Remediation Fund is to compensate New York
State borrowers, including residents of minority areas and African American
females identified by the Department of Justice and the NYSBD, who obtained home
mortgage loans from Delta between October 1, 1995 and September 17, 1999 and who
allegedly paid more for their loans than the average borrower who was a resident
of non-minority areas or the average non-minority borrower, and New York State
borrowers with respect to whom the NYSBD alleges Delta violated HOEPA or RESPA.
Compensation will be in the form of reductions to monthly mortgage payments on a
going forward basis as set forth in the September 17, 1999 Remediation Agreement
executed by the NYSBD and Delta.
The "Amelioration Fund" will be used to provide monetary restitution to
borrowers who were allegedly harmed by Delta's alleged fair lending, RESPA,
and/or HOEPA violations, as identified by the Department of Justice and the
NYSBD. Restitution must be paid to all eligible New York State borrowers before
restitution is made to borrowers outside New York State. Any borrower to whom
compensation is awarded from the Remediation Fund or Amelioration Fund shall be
required, prior to receiving any such compensation, to sign a general release.
VI. MONITORING AND COMPLIANCE SYSTEM
A. Within forty-five days of the date of this Settlement Agreement, Delta
shall submit to the federal agencies for review and approval a new monitoring
and compliance system designed to ensure uniform application of
underwriting criteria and appropriate payment of mortgage broker fees.
If the federal agencies do not otherwise notify Delta in writing within
forty-five days after their receipt of the new monitoring and compliance system,
it shall be deemed approved.
B. The monitoring and compliance system shall include:
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1. Development and implementation of policies and guidelines
designed to ensure that the underwriting of mortgage loans is
made in compliance with law. Such guidelines shall be
incorporated into Delta's lending policy;
2. Development and implementation of a system designed t
accurately record data related to the charging of broker
fees on mortgage loans underwritten, closed and funded by
Delta, including the dollar and percentage amount of the
broker fee charged, the amount and type of loan, documentation
of any pricing exceptions, information about the borrower
as required by the Home Mortgage Disclosure Act ("HMDA"), the
name of the loan officer, and the name of the mortgage
broker;
3. Development and implementation of a comprehensive system
designed to permit detailed periodic monitoring of mortgage
origination pricing practices to ensure that flexible pricing
does not result in discrimination and that mortgage broker
compensation is in exchange for and is reasonably related to
the services, goods, and facilities provided by the broker.
4. The development and implementation of a system designed to
identify all borrowers whose loans are subject to the
requirements of HOEPA and permit detailed and ongoing
monitoring of file documentation that such borrowers are able
to repay their loans.
5. The designation of managers, including senior-level managers,
to serve as compliance officers and to monitor compliance with
the foregoing compliance system; and
6. The development and implementation of a disciplinary policy
for employees who violate the required policies and practices
described in this Settlement Agreement.
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VII. EDUCATION OF DELTA EMPLOYEES
A. Within forty-five days from the effective date of this Settlement
Agreement, Delta shall amend its existing Fair Lending Training Program to
include the elements set forth below, and shall submit the amended
training program ("Amended Training Program") to the federal agencies for review
and approval. If the federal agencies do not otherwise notify Delta in writing
within forty-five days after their receipt of the Amended Training Program,
it shall be deemed approved. Such Amended Training Program shall include:
1. A detailed discussion of the purpose of, and the prohibitions
contained in HOEPA, ECOA, FHA, and RESPA;
2. A detailed discussion of liability for violations of HOEPA, ECOA,
FHA, and RESPA;
3. A certification form to be completed by each officer and employee
attending the training program; and
4. A schedule pursuant to which the training program and supplemental
training programs will be offered.
B. Within sixty days following the approval of the Amended Training
Program by the federal agencies, all Delta officers and employees
whose job responsibilities include contact with consumers or mortgage brokers
concerning mortgage loan applications, the pricing of mortgage loans or the
monitoring of mortgage pricing shall attend the Amended Training Program.
C. All new Delta officers and employees whose job responsibilities
include contact with consumers or mortgage brokers concerning mortgage
loan applications, the pricing of mortgage loans or the monitoring of
mortgage pricing shall attend the Amended Training Program within forty-five
days of their employment with Delta.
D. All Delta officers and employees attending the Amended Training Program
shall execute a certification form stating that the individual has
attended the Amended Training
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Program, that the individual understands Delta's policies regarding
non-discrimination in the origination and underwriting of mortgage loans, that
the individual understands Delta's disciplinary policies with respect to
originating and underwriting mortgage loans and compliance with XXXXX, ECOA,
FHA, and RESPA, and that the individual understands that failure to comply with
such laws may subject the individual and/or Delta to sanctions.
E. Delta shall comply with the training provisions described above in all
states in which it does business; provided, however, that in states other than
New York, Delta shall not be required to provide training in connection with
laws that apply only in New York.
VIII. RECORDKEEPING AND REPORTING REQUIREMENTS
A. For a period of three years from the date of this Settlement Agreement,
Delta agrees to retain all loan application files submitted for mortgage loans,
all loan-related documents and notices relevant to any pricing decisions, and
all documents related to compliance and monitoring as set forth in Section
VI, above. During this period, upon reasonable notice from the Civil Rights
Division of the United States Department of Justice ("DOJ"), Delta shall make
individual mortgage loan application files and related records available for
inspection or copying by the DOJ.
B. Delta agrees that it will periodically review its lending operations
for compliance with the RESPA, FHA and ECOA.
C. For a period of three years from the date of this Settlement Agreement,
Delta shall report its compliance with this Settlement Agreement to the
DOJ semi-annually, beginning with the period ending September 30, 2000,
within forty-five days after the end of each half-year period.1 Each such report
shall include:
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1. A report on Delta's fair lending pricing requirements; and
2. A description of corrective actions taken by Delta to comply
with this Settlement Agreement.
IX. ADMINISTRATION OF SETTLEMENT AGREEMENT; MISCELLANEOUS
A. The Court shall retain jurisdiction for the purpose of enforcing the
terms of this Settlement Agreement for a period of three years from the
date it is entered by the Court, at which time this Settlement Agreement shall
terminate. The Settlement Agreement shall be binding on Delta and any of its
employees, representatives, officers, heirs, assigns, subsidiaries, or
successors in interest.
B. The parties to this Settlement Agreement shall endeavor in good faith
to resolve informally any differences regarding interpretation of and
compliance with this Settlement Agreement prior to bringing such matters to the
Court for resolution. Furthermore, the United States shall not bring any matter
involving compliance with this Agreement to the Court for resolution unless it
reasonably believes that Delta has materially violated the provisions of this
Settlement Agreement. This Settlement Agreement may be modified by written
consent of Delta and the federal agencies. Any such modification may be
submitted to the Court for approval, and shall be deemed effective immediately
upon execution by the parties until such time, if any, that the Court
indicates a lack of such approval.
C. For purposes of measuring time periods, the "date of" this Settlement
Agreement shall be deemed to be the date of its entry by the Court.
D. Each party to this Settlement Agreement will bear its own costs.
E. This Settlement Agreement, when fully executed and performed by Delta to
the reasonable satisfaction of the federal agencies, will resolve all the
issues between Delta and its affiliates (including, without limitation, Delta
Financial Corporation), and the United States respecting the subject matter of
the United States' Complaint.
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F. The entry into this Settlement Agreement shall not be deemed or
construed to be an admission of, or evidence of, any violation of any
statute, law or regulation or of any liability or wrongdoing or of the
truth of any of the claims or allegations of the United States, and may not be
used against Delta in any other action o proceeding. The United States
Agreement shall not be considered by the Unites States as a violation of any
federal or state law prohibiting discrimination.
G. Any requirement, responsibility, or obligation imposed on Delta by
this Agreement which is based upon statute, regulation, or Statement of Policy
shall bind Delta only to the extent that the applicable portion of that
authority remains in force and effect.
H. This Agreement may be executed in multiple counterparts, each of which
shall be deemed a duplicate original.
I. Nothing in this Agreement is intended to confer or limit any right,
remedy, obligation or liability upon any person or entity other than the parties
hereto and their respective successors.
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It is so ORDERED this 5th day of April, 2000.
/S/ XXXXXXX XXXXXX _
United States District Judge
The undersigned apply for and consent to the entry of this Order:
For the United States:
XXXXX XXXX
ATTORNEY GENERAL
XXXX XXXX XXX
ACTING ASSISTANT ATTORNEY GENERAL
XXXXXXX X. XXXXX
UNITED STATES ATTORNEY ----------------------------------
/S/ XXXX X. XXXXXXX
XXXXXXXXX X. XXXX
---------------------- XXXXXXX O'XXXXX
XXXXX XXXXXX (MT7529) Attorneys
Assistant U.S. Attorney Housing and Civil Enforcement Section
1 PIERREPONT PLAZA, 16th Floor Civil Rights Division U.S. Department of
Brooklyn, NY 11201 Justice
P.O. Box 65998
Washington, DC 20035
XXXX X. XXXXXX
General Counsel
------------------------------
/S/ XXXXX X. For Delta Funding Corporation
RACE and Delta Financial Corporation:
XXXXX X. RACE
Assistant General Counsel
XXXXXXX XXXXXXXX /S/ XXXXXX X. XXXX
Assistant General Counsel ----------------------------------
U.S. Department of Housing XXXXXX X. XXXX (TN-9279)
and Urban Development
/S/ XXXXXXX X. XXXXX
---------------------------------
XXXXXXX X. XXXXX (MH-0154)
XXXXXX X. XXXXXX (EL-0334)
Xxxxxxxxxxx & Xxxxxxxx LLP
0000 Xxxxxxxxxxxxx Xxxxxx, X.X
Xxxxxxxxxx, XX 00000-1800
/S/ XXXXXXXX XXXX (000) 000-0000
---------------------------
XXXXX XXXXXX
Associate Director for
Financial Practices
XXXXXXXX XXXX
Attorney
Federal Trade Commission
000 Xxxxxxxxxxxx Xxxxxx, X.X.
Washington, DC 20580
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ATTACHMENT A
DELTA FUNDING CORPORATION
0000 XXXXXXXX XXXX
XXXXXXXX, XX 00000
000-000-0000
BROKER INFORMATION DISCLOSURE
Date:
File:
Dear Customer:
The purpose of this disclosure is to provide you with an estimate of the fee you
will be paying to your Mortgage Broker in connection with your loan. This
disclosure does NOT include all fees you will pay for this loan. For that
information please refer to the Good Faith Estimate of settlement costs that you
already have or soon will receive, and the HUD-1 form that will be given to you
at closing. The HUD-1 will show the final charges for broker and other fees.
Please read this information carefully so that you make an informed choice. You
are entitled to a copy of this disclosure. Signing this disclosure does not
obligate you to obtain the mortgage loan described below, nor does it constitute
a mortgage loan approval.
We have received your application for a mortgage loan from (NAME OF MORTGAGE
BROKER) .
1) The Mortgage Broker is expected to charge a total of $_________ for
arranging a mortgage loan of $_______ at a proposed interest rate of ___%.
This amount is made of:
a) $__________ paid by you to the Broker as a percentage of the
loan; and
$__________ in additional amounts paid by you to the Broker as
noted on the Good Faith Estimate. These amounts will be paid
from the proceeds of your loan and/or directly out of your
pocket; and
b) $__________ paid to the Broker by Delta Funding Corp. which
increases your interest rate on the loan;
IF ANY PORTION OF THE BROKER FEE DESCRIBED ABOVE IS PAID FROM THE PROCEEDS OF
THE LOAN, YOU WILL BE OBLIGATED TO REPAY THIS AMOUNT WITH INTEREST OVER THE TERM
OF THE LOAN.
If you would rather pay a lower interest rate on your loan, you may be able to
pay higher upfront fees. If you pay less upfront, you may pay a higher interest
rate. If you have any questions about the different options available to you,
your mortgage broker and/or Delta will be glad to discuss them with you.
2) The Broker's Fee described above is payable only if the loan is approved and
accepted by you.
Please sign and return one copy in the enclosed envelope. Keep the other copy
for your files.
--------------------------------- --------------------
(SIGNATURE) (DATE)
--------
1 All notices, correspondence, reports, or documents required to be provided to
the United States shall be mailed to the following address:
Chief, Housing and Civil Enforcement Section
Civil Rights Division
U.S. Department of Justice
P.O. Box 65998
Washington, D.C. 20035
