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A New York-area bank systematically avoided granting mortgages to minorities, federal regulators alleged Thursday. The firm, Hudson City Savings Bank, is accused of locating branches and loan officers, selecting mortgage brokers, and marketing products to avoid and discourage prospective borrowers in predominantly Black and Hispanic communities, regulators allege. The so-called “redlining” allegations cover lending practices from at least 2009-2013.

A proposed consent order — which must be approved by a federal judge — mandates that the bank spend $25 million on loan subsidies and pay a $5.5 million fine. The bank is also ordered to open two branches in the affected areas, offer financial education and market to minorities.

The Consumer Financial Protection Bureau said this is the largest redlining settlement in history to provide such subsidies.

“We can see that illegal redlining is still a reality for certain neighborhoods in the consumer financial marketplace,” said CFPB Director Richard Cordray. “Borrowers should never be discouraged from obtaining a mortgage product because of the racial makeup of their neighborhood. That is un-American, plain and simple; it weakens our communities as well as our entire economy.”

Hudson City operates 135 branches, most in the large New York City metro area — including Connecticut — and Philadelphia. Both the CFPB and the Department of Justice joined in the complaint against Hudson City.

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. The firm said earlier this year it expects a final answer from the Federal Reserve on the merger by Oct. 1. It’s possible settling the investigation, which was disclosed earlier this year by M&T, will clear the way for the merger.

“Hudson City Savings Bank structured its business operations to systemically avoid providing credit services in predominantly minority neighborhoods,” said U.S. Attorney Paul J. Fishman of the District of New Jersey. “There is no room for such behavior in our banking system. … Today’s settlement agreement will require the bank to take a number of concrete steps to ensure that they improve access to responsible and affordable credit to qualified borrowers in Black and Hispanic neighborhoods.”

Hudson City did not immediately return a request for comment.

“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, head of the Civil Rights Division. “A lending institution must treat all potential borrowers equally, regardless of their race or the racial composition of their neighborhood, when deciding to offer its loan services. We encourage all lenders to proactively identify responsible lending opportunities that exist in predominantly minority neighborhoods within their lending areas.”

Here are the specific allegations, according to the CFPB.

  • Avoiding locating branches and loan officers in majority-Black-and-Hispanic communities: From 2004 through 2010, Hudson City embarked on a branch expansion in Staten Island, Long Island, north of New York City, and Connecticut. These areas exclude and form a semi-circle around the four counties in New York with the highest proportions of majority-Black-and-Hispanic neighborhoods. Ninety-four percent of the branches opened or acquired as a result of this expansion effort were outside of majority-Black-and-Hispanic neighborhoods. Hudson City also placed all of its loan officers outside of majority-Black-and-Hispanic areas.
  • Avoiding using mortgage brokers in majority-Black-and-Hispanic communities: Hudson City generated 80 percent of its mortgage applications through mortgage brokers, who were heavily concentrated outside of majority-Black-and-Hispanic areas. In 2011 and 2012, 94.5 percent of Hudson City’s top 50 brokers’ offices were not in majority-Black-and-Hispanic areas. For example, none of the 47 brokers utilized by Hudson City in the Philadelphia and Camden area were headquartered in majority-Black-and-Hispanic communities, despite these communities representing 22.6 percent of that area’s census tracts.
  • Excluding majority-Black-and-Hispanic communities from its marketing strategy: Hudson City focused its limited marketing in neighborhoods with relatively few Black and Hispanic residents.  Hudson City chose Suffolk County, N.Y. for its strategic marketing initiative. Suffolk County has a lower proportion of majority-Black-and-Hispanic neighborhoods than any other county in New York City and Long Island. In another initiative, Hudson City advertised and offered discounted home improvement loans only to residents of certain counties, excluding from eligibility the four New York State counties with the highest proportions of majority-Black-and-Hispanic neighborhoods.
  • Excluding majority-Black-and-Hispanic neighborhoods from its credit assessment areas: Hudson City is required under the Community Reinvestment Act to select an area and to meet the credit needs of residents in that area. In doing so, the bank excluded most or all majority-Black-and-Hispanic neighborhoods in the areas selected. For example, Hudson City’s assessment area near Philadelphia and Camden excluded all 337 neighborhoods with a majority of Black and Hispanic residents.

Applying for a mortgage is one of the biggest financial decisions Americans make. If you’re planning on purchasing a home soon, you should stay on top of your credit in order to make sure you can get the best deal possible when you choose a lender. You can check your credit scores for free every month on Credit.com to see where you stand.

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