The Consumer Financial Protection Bureau issued a guidance bulletin on May 11 that addresses creditors’ obligations under the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, to provide non-discriminatory access to credit for mortgage applicants using income from the Section 8 Housing Choice Voucher (HCV) Homeownership Program.
“The bureau has become aware of one or more institutions excluding or refusing to consider income derived from the Section 8 HCV Homeownership Program during mortgage loan application and underwriting processes. Some institutions have restricted the use of Section 8 HCV Homeownership Program vouchers to only certain home mortgage loan products or delivery channels,” the CFPB stated.
ECOA and Regulation B prohibit creditors from discriminating against applicants whose receives all or part of their income from any public assistance program. Public assistance consists of any federal, state or local governmental assistance program that provides a continuing, periodic income supplement, whether premised on entitlement or read.
Under Regulation B, “[i]n a judgmental system of evaluating creditworthiness, a creditor may consider ... whether an applicant’s income derives from any public assistance program only for the purpose of determining a pertinent element of creditworthiness.”
However, “[i]n considering the separate components of an applicant’s income, the creditor may not automatically discount or exclude from consideration any protected income. Any discounting or exclusion must be based on the applicant’s actual circumstances.”
The CFPB added that disparate treatment prohibited by ECOA and Regulation B may be found when a creditor treats applicants differently by excluding or refusing to consider Section 8 HCV Homeownership Program vouchers as a source of income, or accept the vouchers only for certain mortgage loan products or delivery channels.
Creditors also should be wary of disparate impact liability. Even if a creditor does not intend to be discriminatory on the basis of public assistance income, and practices appear neutral on their face, underwriting policies that have a disproportionately negative impact can open the door to liability.
For policies and practices that result in disparate impacts, creditors must be able to show a legitimate business need that reasonably cannot be achieved by means with less of a disparate impact.
According to the bulletin, “An institution’s clear articulation of underwriting policies regarding income derived from public assistance programs; training of underwriters, mortgage loan originators, and others involved in mortgage loan origination; and careful monitoring for compliance with such underwriting policies can all help the institution manage fair lending risk in this area and comply with the requirements of ECOA and Regulation B.”
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