Complaint in Shawmut Mortgage Company

http://www.usdoj.gov/crt/housing/documents/shawmutcomp.htm

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT
UNITED STATES OF AMERICA, Plaintiff,
v.
SHAWMUT MORTGAGE COMPANY, Defendant.
_______________________________
COMPLAINT
The United States of America alleges:
1. This action is brought by the United States to enforce the provisions of Title VIII of the Civil Rights Act of 1968 (the Fair Housing Act), as amended by the Fair Housing Amendments Act of 1988, 42 U.S.C. §§ 3601-3619, the Equal Credit Opportunity Act (the ECOA), 15 U.S.C. §§ 1691-1691f, as amended, and, acting upon notification and authorization to the Attorney General by the Federal Trade Commission, §§ 5(a) (1), 5(m)(1) (A), 9, 13(b), 16(a) and 19 of the Federal Trade Commission Act (the FTC Act), 15 U.S.C. §§ 45(A) (1) , 45(m) (1) (A), 49, 53(b), 56(a), and 57b.
2. This court has jurisdiction of this action pursuant to 28 U.S.C. §§ 1331, 1337a, and 1345; 42 U.S.C. § 3614; and 15 U.S.C. SS 45(m) (1) (A), 49, 53(b), 56(a), 57b, 1691(c) and 1691(h).
3. Defendant, Shawmut Mortgage Company (or "the mortgage company" or "the lender"), is a Connecticut Stock Corporation incorporated under the laws of the State of Connecticut with its principal place of business in West Hartford, Connecticut. Shawmut Mortgage Company is a wholly-owned subsidiary of Hartford National Corporation, a bank holding company incorporated under the laws of the State of Delaware with its principal place of business in Hartford, Connecticut. Hartford National Corporation is a wholly-owned subsidiary of Shawmut Services Corporation, a bank holding company incorporated under the laws of the State of Delaware with its headquarters in Hartford, Connecticut. Shawmut Mortgage Company's business includes engaging in residential real estate-related transactions and regularly extending credit to persons. The mortgage company is a creditor as that term is defined, by section 702(e) of the ECOA, 15 U.S.C. § 1692a(e), and is, therefore, subject to the requirements of the ECOA and its implementing Regulation B, as amended, 12 C.F.R. Part 202, in effect on or after March 23, 1977.
4. Beginning in January 1990, as required by the Home Mortgage Disclosure Act ("HMDA"), the mortgage company has maintained a Loan Application Register ("LAR") on which the lender's employees recorded information about each home loan application, including the applicants, income and race (or ethnicity), the loan amount, the type of loan, whether the subject property was to be owner-occupied, and the action taken by the mortgage company on the application. The mortgage company kept the LAR data in computerized form, in preparation both for the filing of annual HMDA reports to the mortgage company's federal bank regulatory agency and for internal reports that were circulated periodically to its management and employees. On the basis of the LAR/HMDA reports management of the mortgage company knew that it had been denying the home mortgage loan applications of black and Hispanic applicants at substantially higher rates than white applicants. More specifically, the reports showed that:
a. in 1990 the mortgage company's overall denial rates for applications for conventional purchase and refinancing loans combined were 123 of 317 (or 38.8%) for blacks; 68 of 205 (or 33.17%) for Hispanics; and 1,193 of 6,892 (or 17.31%) for whites;
2. in 1991 these denial rates were 122 of 359 (or 33.98%) for blacks; 68 of 222 (or 30.63%) for

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Hispanics; and 1,122 of 7,634 (or 14.7%) for whites; and
3. in 1992 these denial rates were 118 of 555 (or 21.26%) for blacks; 88 of 360 (or 24.44%) for Hispanics; and 1,594 of 14,999 (or 10.63%) for whites.
5. Prior to late 1991, when the mortgage company began to implement a special program to review the files of denied minority applicants, it processed applications for home mortgages in the following manner:
a. employees of the mortgage company (usually with the title of "loan counsellor" or "loan originator") contacted real estate agents and brokers, builders, and others involved in the sale of residential real estate, in order to develop sources of referrals of persons interested in borrowing money to purchase homes (or to refinance their current outstanding home mortgage debts).
2. It was the responsibility of the loan counsellor to have those seeking home mortgage loans present an initial application containing the financial information deemed necessary by the mortgage company to make an underwriting decision on the loan application (i.e., a decision whether to deny the application, to approve it under the terms requested, or to make a counter-offer). The required qualifying information included (among other things): The applicant(s)' income, employment history, education, past credit performance, outstanding financial obligations, assets (liquid and non-liquid), and the applicant(s)' projected monthly payment for the loan sought (including principal, interest, taxes, and insurance). It was also the loan counsellor's responsibility to ascertain the existence of any "offsetting" qualifications of the applicant(s) that could compensate for one or more deficiencies in the required qualifying information.
3. In addition to the information requested of the prospective borrower(s) by the application form, the mortgage company required applicant(s) to sign additional forms authorizing the lender to obtain documentation of the qualifying information claimed by the applicant(s). These additional forms included:
i. A verification of Employment (VOE) form, to be executed by the applicant(s)' employer(s) and returned to the mortgage company, verifying the applicant(s)' claimed base salary or wages for the past two years and year-to-date, and secondary income (such as overtime, bonus, and commission income). The VOE contains a box to be checked ("yes" or "no") as to whether the applicant(s)' secondary income is expected to continue;
2. A Verification of Deposit (VOD) form, to be executed by the applicant(s)' financial depository institution(s) and returned to the mortgage company, verifying the amount of the applicant(s)' claimed deposits;
3. A mortgage or rent payment verification form, whichever was applicable, to be executed by the applicant(s)' former mortgagee or landlord and returned to the mortgage company, verifying the applicant(s)' prior mortgage or rent amount and payment history; and
4. A credit report form authorizing a credit reporting firm selected by the mortgage company to verify on its behalf the amount and duration of the applicant(s)' financial obligations and to obtain both positive and negative information on the applicant(s)' credit history with respect to both present and former financial obligations over the previous seven-year period.
The purpose of the verifications described in sub-paragraph (c) was to provide the lender with documentary evidence of the applicant(s)' claimed financial qualifications for loan approval, i.e., the ability and willingness to repay the mortgage debt. In those instances where the qualifying information was not susceptible to verification by use of standard forms (such as the VOE for the self-employed or the VOD for those whose assets were not located in depository financial institutions), the mortgage company had the option to require applicant(s) to submit alternative documentation (such as copies of tax returns or proof of liquid assets not held by a depository inst itution) directly to the lender.

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4. Upon receipt of the verification forms by the lender, it was the responsibility of a loan processor (alone or in concert with the loan counsellor or the loan underwriter) to see to it that the forms were complete, properly executed, and consistent with the applicant(s), claimed financial qualifications. In addition, it was the loan processor's responsibility to place the documentation in the loan file, in preparation for submission of the application to the lender's underwriters for a decision. The extent of the documentation the mortgage company required for each loan application was dependent upon either the lender's internal standards with respect to loans it intended to hold in its own loan portfolio (or the portfolio of one of its affiliated depository institutions) or, for those loans that the mortgage company intended to sell, the external standards required by potential purc hasers of the loan on the secondary mortgage market.
5. With the exception of credit reporting agencies that reported derogatory credit history, those entities that provided documentation to the mortgage company on the standard forms described in paragraph 5 provided none of the verification forms or the qualifying information contained therein directly to the applicant(s). If the credit report included derogatory information, the credit reporting agency, by means of a form letter, informed the applicant(s) of the existence of the derogatory information and advised the applicant(s) to contact the credit reporting agency in order to correct claimed errors in the report.
6. After assembling a loan file containing the application, the documentation of the applicant(s)' ability and willingness to repay the mortgage debt, and an appraisal of the subject property (used to document the adequacy of the security value of the property to be mortgaged), the loan processor submitted the file to the mortgage company's underwriters for a loan decision.
7. It was the responsibility of the underwriter, prior to making an underwriting decision, to insure that all of the applicant(s)' claimed qualifying information was documented for the file, by obtaining the information from those who had been asked to supply it, or by requesting the loan processor to do so.
8. Thereafter, it was the responsibility of the mortgage company's underwriters to review the entire loan file to assess the evidence therein concerning the applicant(s) ability and willingness to repay the loan and the security value of the subject property. On the basis of this assessment, the underwriters made a decision whether the mortgage company should approve the loan application under the terms requested, deny the application under those terms but make a counteroffer to the applicant(s), or deny the application. In making these decisions, it was the underwriter's responsibility to apply rules (or "underwriting guidelines") that were defined either by the mortgage company's internal standards for those loans it intended to hold in its own loan portfolio (or the p ortfolio of one of its affiliated depository institutions), or, for those loans that the mortgage company intended to sell, by the external standards required by potential purchasers of the loan on the secondary mortgage market.
6. Prior to late 1991, it was the lender's policy to allow its employees, in carrying out the procedures described in the previous paragraph, to exercise discretion in deciding the extent of the efforts they would make to document the qualifying information of loan applicants. Pursuant to this policy, the employees were free to decide whether to request applicants for alternative documentation, depending on a variety of circumstances, including but not limited to circumstances:
a. when the standard verification forms described in subparagraphs 5 (c) (i)-(iv) were not provided for documentation of positive information, or
2. when applicants might have been able to supply additional information that would compensate for negative qualifying information or an explanation of any negative information that had been provided.
7. Prior to late 1991, it was the lender's policy, pursuant to its internal underwriting guidelines and the external underwriting guidelines of its secondary market purchasers, to allow its underwriters broad discretion in approving loan applications that failed to meet all guideline requirements, so long as the facts upon which the exceptions were made were adequately documented in the loan file. In addition, the mortgage company permitted underwriters to waive documentation of specific requirements if the file contained documentation

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of compensating or offsetting qualifying information.
8. Prior to late 1991, it was the policy of the mortgage company to require different or varying levels or degrees of documentation of applicants' qualifying information, depending on a variety of circumstances, including but not limited to:
a. the loan product sought by the applicants;
2. the applicant(s)' provision of documentation of offsetting qualifications that could compensate for inadequacies in or lack of documentation of the applicant(s)' ability or willingness to pay or the security value of the subject property;
3. the mortgage company's contractual arrangements with one or more secondary market purchasers, under which the loan purchasers agreed in advance to purchase loans that had been approved by the lender under exceptions, specifically set forth in the contract, to the documentation contained in such purchasers, published underwriting guidelines; and
4. the mortgage company's allowance of formal "underwriting exceptions," whereby named officers and employees of the mortgage company were allowed to obtain the underwriter's approval of loan applications that failed to meet the lender's underwriting guidelines or that contained less documentation than that required of similarly situated applicants not applying under an exception. To this end the mortgage company maintained an "exceptions list" that specified which named officers or employees were entitled to invoke specifically described exceptions.
9. Prior to late 1991, the lender had no mechanism in place to review the level of diligence exercised by its loan counsellors, loan processors, or underwriters in obtaining documentation of black and Hispanic applicants' qualifying information or to review the level of discretion its underwriters exercised in applying internal or external underwriting criteria to their applications.
10. During the period January 1990 through late 1991, the mortgage company failed to take adequate steps to insure that its loan counsellors, loan processors, or underwriters exercised the same degree of diligence in obtaining documentation of qualifying information for black and Hispanic applicants as they exercised in obtaining such information for white applicants, or to take adequate steps to insure that its underwriters applied the same underwriting standards to black and Hispanic applicants as they did to white applicants.
11. The mortgage company began to make policy changes in late 1991 that were intended to improve its treatment of black and Hispanic applicants. However, these changes had only incremental impact prior to late 1992. Specifically, in late 1991 the mortgage company instituted several changes in its policies and procedures. This included a procedure whereby certain of its employees sitting on "Mortgage Review Committees" were given the responsibility of reviewing the files of minority applicants whose loans had been denied by the lender's underwriters. Between late 1991 and late 1992, the Mortgage Review committee process made some progress, but was not wholly effective in eliminating discriminatory practices. Instead of creating a mechanism that would insure fair treatment of all applicants by loan counsellors, loan processors and underwriters, the lender allowed the Mortgage Review Committee to obtain applicant qualifying information that either contradicted that obtained by the loan counsellors, loan processors or underwriters or provided offsetting or compensatory information that would justify loan approval.
12. Prior to late 1992 or early 1993, the mortgage company failed to instruct its loan counsellors or loan processors to obtain documentation of, or underwriters to consider:
a. the stability of applicants' income (in contrast to the stability of applicants' employment) in documenting applicants' ability to repay the mortgage loan;
2. applicants, prior record of rent and utility payments (in contrast to credit history as reflected by applicants, performance in repaying contractual debt) in documenting applicants, ability and

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willingness to repay the mortgage loan;
3. applicants' non-traditional sources of cash for down payment, such as family revolving loans or cash that was not held by the applicants in depository financial institu tions; and
4. the income and assets of applicants, extended family members, who planned to reside at the property subject to the mortgage but who were not co-applicants, in documenting applicants' ability to repay the mortgage loan.
13. Prior to late 1991, the lender's management knew or should have known that the implementation of its policies and practices resulted in discrimination against black and Hispanic loan applicants. More specifically, these officials knew or should have known that:
a. at each stage of the loan application process described in paragraph 5, the mortgage company's employees exercised the discretion allowed to them by the policies described in paragraphs 6 though 8;
2. black and Hispanic applicants who could have qualified for approval were being denied loans as the result of the failure of the lender's employees to undertake sufficient steps to obtain documentation of the applicants, qualifying information;
3. white applicants were approved when they did not meet all of the mortgage company's underwriting guidelines or when the documentation of their qualifying information was in part missing or incomplete; and
4. black and Hispanic applicants were more likely than white applicants to benefit from the formal changes made in the lender's documentation requirements as described in paragraph 12.
From late 1991 to late 1992, the Mortgage Review Committees, in reversing denials made by underwriters, consistently found that these employees had failed to exercise the diligence expected of them in documenting the qualifying information of black and Hispanic applicants.
14. As a result of the manner in which the policies and practices described in paragraphs 5 through 13 were implemented, black and Hispanic applicants who sought home mortgage loans from the mortgage company during the period January 1990 through late 1991, and in some instances between late 1991 and late 1992, were:
a. subjected to more stringent standards than were white applicants, either by the failure of the lender's underwriters to consider their offsetting or compensating qualifying information to the extent that such information was considered for white applicants, or by the underwriters, subjecting them to higher underwriting standards than those applied to white applicants;
2. provided with lesser opportunities than were white applicants to document their qualifying information; or
3. denied loans under underwriting policies and practices that had a greater negative impact on their chances for loan approval than on the approval chances of white applicants.
15. The disparities in denial rates between white home mortgage loan applicants and black and Hispanic applicants during the period January 1990 through October 1992 cann ot be fully attributed to differences in the relative qualifications of white and minority applicants.
16. The manner in which the mortgage company's policies and practices were implemented, as described in paragraphs 5 through 13 constituted:
a. discrimination on the basis of race or national origin in making available residential real estate-related transactions in violation of Section 805 of the Fair Housing Act, 42 U.S.C. § 3605(a);

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2. the making unavailable or the denial of dwellings to persons, because of race or national origin, in violation of Section 804(a) of the Fair Housing Act, 42 U.S.C. § 3604(a); and
3. discrimination on the basis of race or national origin in the terms, conditions, or privileges of the provision of services or facilities in connection with the sale or rental of dwellings, in violation of Section 804(b) of the Fair Housing Act, 42 U.S.C. § 3604(b).
17. During the period January 1990 through October 1992, on numerous occasions, defendant has denied mortgage credit to black and Hispanic applicants, while extending mortgage credit to similarly qualified white applicants, and has thereby discriminated against black and Hispanic applicants on the basis of race or national origin, thereby violating Section 701(a) (1) of the ECOA, 15 U.S.C. § 1691; and Section 202.4 of Regulation B.
18. Defendant has engaged in the practices described in this Complaint with knowledge as set forth in Section 5(m) (1) (A) of the FTC Act, 15 U.S.C. § 45(m) (1) (a).
19. The discriminatory practices of defendant as described in this Complaint were implemented with disregard for the rights of black and Hispanic persons.
20. During the period January 1990 through October 1992, the defendant engaged in a pattern or practice of discrimination in home mortgage lending, in violation of the Fair Housing Act and the Equal Credit Opportunity Act by:
a. requiring a higher level of documentation of black and Hispanic applicants' qualifying information than it required of white applicants;
2. failing to make an effort to obtain documentation of black and Hispanic applicants, qualifying information comparable to the efforts made to obtain documentation of the qualifying information of white applicants;
3. failing to obtain qualifying information from black and Hispanic applicants that would compensate for apparent disqualifying information;
4. failing to approve loans for qualified black and Hispanic applicants under the same underwriting standards that were applied to qualified white applicants;
5. failing to approve loans for black and Hispanic applicants whose qualifications as documented in the mortgage company's loan files did not meet all of its underwriting standards but nevertheless met standards that were equal to or greater than those applied to similarly situated white applicants; and
6. failing to take steps to insure that the policy of granting excepti ons for certain applicants, as described in paragraph 8 (d), did not result in the application of discriminatory standards to minority applicants.
21. During the period January 1990 through October 1992, the defendant engaged in a pattern or practice of discrimination against minority applicants with respect to credit transactions, in violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691(A) (1), by failing to implement the policy changes described in paragraph 12, thereby continuing an overall loan processing system that had the effect of discriminating against black and Hispanic applicants.
22. The implementation of the defendant's policies and practices as described in this Complaint, constitutes:
a. a pattern or practice of resistance to the full enjoyment of rights secured by the Title VIII of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988, 42 U.S.C. §§ 3601-3619; and
2. a denial to a group of persons of rights granted by Title VIII of the Civil Rights Act of 1968, as

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amended by the Fair Housing Amendments Act of 1988, 42 U.S.C. §§ 3601-3619, that raises an issue of general public importance.
23. Persons who have been victims of defendant's discriminatory practices as described in this Complaint are aggrieved persons as defined in 42 U.S.C. § 3602(i). As a consequence of defendant's practices, these persons have been denied their rights to equal opportunity in housing, cred it, and residential real estate-related transactions. Some victims also have experienced other actual, compensable injuries, such as economic loss.
WHEREFORE, the United State's prays that the court enter an ORDER that:
a. declares that the totality of the policies and practices of defendant constitutes a violation of the Fair Housing Act, the FTC Act, and the Equal Credit Opportunity Act;
2. enjoins defendant, its agents, employees and successors, and all other persons in active concert or participation with it, from discriminating on account of race or national origin in any aspect of their mortgage lending activities;
3. requires defendant to develop and submit to the court for its approval a detailed plan that: (a) remedies the vestiges of defendant's discriminatory policies and practices; and (b) ensures that future black and Hispanic mortgage loan applicants will be treated in a nondiscriminatory manner that does not differ from the treatment afforded to white applicants;
4. awards such damages or redress as would fully compensate the victims of defendant's discriminatory conduct for the injuries caused by the defendant; and
5. assesses civil penalties against defendant, in order to vindicate the public interest.
The United States further prays for such additional relief as the interests of justice may require.
JANET RENO Attorney General
JAME P. TURNER Acting Assistant Attorney General
PAUL F. HANCOCK Chief, Housing and Civil Enforcement Section
ALEXANDER C. ROSS JEFFERY SENGER Attorneys, Housing and Civil Enforcement Section Civil Rights Division U.S. Department of Justice P.O. Box 65998 Washington, D.C. 20035-5998 (202) 514-4713
CHRISTOPHER F. DRONEY United States Attorney
JOHN B. HUGHES Assistant United States Attorney Chief, Civil Division 450 Main Street, Room 328 Hartford, CT 06103 (203) 240-3270

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DAVID MEDINE Associate Director PEGGY L. TWOHIG Assistant Director SANDRA M. WILMORE Attorney Division of Credit Practices Federal Trade Commission Washington, D.C. 20580 (202) 326-3210

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 Shawmut Mortgage Settlement

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT
UNITED STATES OF AMERICA, Plaintiff,
v.
SHAWMUT MORTGAGE COMPANY, Defendant.
__________________________________
CONSENT DECREE
The United States files this Consent Decree simultaneously with its complaint against the Shawmut Mortgage Company ("the mortgage company" or "the lender") alleging violations of the Fair Housing Act (Title VIII of the Civil Rights Act of 1968, as amended by the Fair Housing Amendments Act of 1988), 42 U.S.C. §§ 3601-3619: the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-691f; and the Federal Trade Commission Act, 15 U.S.C. §§ 45(A) (1), 45(m) (1) (A), 49, 53(b), 56(a), and 57b. The Complaint alleges that the mortgage company has engaged in policies and practices that discriminated on the basis of race and national origin in its home mortgage lending business.
The lender denies all of the allegations in the Complaint and states that it has never discriminated on the basis of race or national origin in its mortgage lending business.
More specifically, the United States alleges that the mortgage company, during the period January 1990 through October 1992, engaged in lending practices that discriminated on the basis of race and national origin by requiring a higher level of documentation of black and Hispanic applicants' qualifying information than it required of white applicants; failing to make the same level of effort to obtain documentation of black and Hispanic applicants' qualifying information that was made to obtain documentation of the qualifying information of white applicants; failing to obtain qualifying information from black and Hispanic applicants that would compensate for apparent disqualifying information; applying more stringent underwriting standards to black and Hispanic applicants by failing to consider the offsetting or compensating information they supplied to the same extent that such information was considered in approving the loan applications of similarly situated white applicants; failing to approve loans for black and Hispanic applicants whose qualifications as documented in the mortgage company's loan files did not meet all of the mortgage company's underwriting standards but nevertheless met standards that were equal to or greater than those applied to similarly situated white applicants; and failing to take steps to insure that the policy of granting exceptions for certain applicants did not result in the application of discriminatory standards to black and Hispanic applicants.
The parties have agreed that, in order to avoid protracted and costly litigation, this controversy should be resolved voluntarily. The parties have also agreed that there should be no evidentiary hearing, trial or other adjudication on the merits, and that the entry of this Consent Decree is not to be construed as an admission by the mortgage company of the validity of any of the claims asserted in this action.
Now therefore, on the basis of the foregoing representations of the United States and the mortgage company, it is hereby ORDERED, ADJUDGED, and DECREED as follows:
I. GENERAL INJUNCTIVE PROVISION
1. The Shawmut Mortgage Company, its officials, employees, and agents, as well as successors, as provided in paragraph 10, below, are enjoined from engaging in any act or practice that discriminates on the basis of race or national origin in the provision of home mortgages, or in the provision of services or facilities in connection with any such transactions; and from imposing on the basis of race or national origin different terms or conditions for the availability of home mortgage loans. Fair Housing Act, 42 U.S.C. §§ 3604 and 3605; Equal

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Credit Opportunity Act, 15 U.S.C. § 1691(a)(1), and Regulation B, 12 C.F.R. § 202.
II. SPECIFIC INJUNCTIVE PROVISIONS
2. The United States recognizes that the mortgage company, beginning in late 1991, and particularly since October 1992, has implemented a comprehensive fair lending compliance program to improve its outreach to potential black and Hispanic borrowers and to ensure that black and Hispanic borrowers who apply for credit are treated in a non-discriminatory fashion, both in the processing of their applications before underwriting, and in the underwriting decisions themselves. Several of the key elements of this program include the planned opening of a branch in the predominantly minority community of Roxbury, Massachusetts; the change of the compensation structure of loan originators to add incentives to encourage the origination of loans on lower-valued homes; the extension of its advertising program in minority-oriented media, such as newspapers and radio stations; the extension of its marketing program efforts to reach into predominantly minority neighborhoods; the training of loan counsellors, loan originators, loan processors and loan underwriters in the principles of fair processing and fair underwriting of loan applications; and the expansion of the role of its Mortgage Review Committee, which re-evaluates the qualifications of all denied minority applicants, to include all other applicants whose applications were denied and whose incomes are 115% or less than the median for their metropolitan areas.
The United States believes that this fair lending compliance program, as more specifically described below and in Attachment 1 to this Decree, is now working well and is adequate to ensure the lender's compliance with the fair lending provisions of the Equal Credit opportunity Act and the Fair Housing Act. Those aspects of the fair lending compliance program the mortgage company has devised to insure that all home loan applications are fully processed and fairly considered are set out below. In addition, Attachment 1 describes the lender's innovative loan products designed to facilitate home ownership by low-to-moderate income persons; its participation in a variety of state and federal loan programs with similar goals; and the marketing and outreach activities it uses to inform potential low-to-moderate income and minority borrowers of loan availability.
A. Mortgage Review Committees
In November 1991 the mortgage company established Mortgage Review committees ("MRCs"), one for Massachusetts/New Hampshire and one for Connecticut/Rhode Island, to provide a mandatory second look at all minority applications before they are declined. The mortgage company gave the committees authority to approve the loan, affirm the underwriter's decision, or return the file with a request for more information. The MRCs initially consisted entirely of senior managers. The committee structure has become more formalized over time. Since October 1992 the MRCs have been staffed by an array of experienced managers and underwriters, including experienced lending professionals who are members of minority groups. In addition, in April 1993 the lender's minority advocate, an African-American with extensive experience in affordable housing issues, joined both MRCs.
The MRC process has evolved in other ways as well. Over time, the committee members have kept more detailed minutes and have distributed the minutes more widely to enable underwriters to better understand the analytical basis for MRC loan approval decisions and to use that learning to improve their own underwriting. On November 1, 1993, the mortgage company invested six senior underwriters with the MRC's approval authority so that they could work with their underwriting colleagues to ensure that all avenues for potential approval are exhausted at the initial underwriting stage. In addition, on November 23, 1993, the lender issued a memorandum informing its underwriters of the major reasons the MRC has approved loans and directing them to employ these analytical tools themselves.
2. Mortgage Customer Assistance Program
In early 1993, the mortgage company created the Shawmut Mortgage Customer Assistance ("SMCA") program and hired an African-American with extensive affordable housing experience to serve as an advocate for minority applicants. Since April 1, 1993, at the time of application, all minority applicants have received a letter informing them of the SMCA program and giving them a telephone number to call for assistance. The letter also describes the twin goals of the SMCA program: (1) to provide information

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and assistance in the loan application process; and (2) to ensure that every loan application is processed in full compliance with the lender's equal credit and fair housing obligations.
3. Self-Evaluation
The mortgage company engages in rigorous self-analysis of its fair lending performance. In late 1992, the Corporate Credit Review Department conducted a sample file review to assess whether white and black applicants with similar credit characteristics were being treated similarly in the underwriting process. In addition, the lender retained an outside consultant in late 1992 to conduct a "mystery shopper program" to assess whether it was treating minority and non-minority applicants similarly in the pre-application process. The testing was conducted between February and April 1993.
On October 8, 1993, Shawmut National Corporation's CRA Policy Committee initiated a comprehensive fair lending compliance program. Pursuant to this initiative, the mortgage company has begun the process of reviewing all of its lending policies and procedures for conformity with its regulatory fair lending obligations and with the Corporation's Fair Lending Mission Statement. It has retained a well regarded outside consultant to assist with this program and has commenced a search for an experienced Director of Consumer Compliance.
The mortgage company will continue these programs, or similar programs, along with additional programs that have been implemented by the lender to serve these goals, during the duration of this Decree.
Of equal importance to the United States in agreeing to the terms of this settlement is that the changes the mortgage company made in November 1992 in its loan processing and underwriting procedures were the direct result of the lender's forthright self-evaluation of the differences in the ways it treated minority and white applicants. In recognition of the mortgage company's incremental, and ultimately effective, steps to correct its fair lending deficiencies, the United States has agreed that it will not be necessary to have this Court impose upon the mortgage company extensive affirmative procedural practices to insure compliance with the general injunctive provisions of this Decree. In further recognition of the self-evaluative and immediate self-corrective steps that the mortgage company has taken, the United States has agreed to a compensation amount, as described in paragraph 7, below, for those injured by the lender's practices during the period January 1990 through October 1992, that is designed only to make whole those persons who may have been injured by past discriminatory conduct; the amount contains no punitive sanctions and is approximately half of the amount the United States would have insisted upon in the absence of such corrective actions. The agreed-upon level of compensation also takes into consideration the reduced costs to the United States in proving its case.
III. RECORD-KEEPING AND REPORTING REQUIREMENTS
3. For a three-year period, the mortgage company will retain all loan application files submitted for home mortgage loans and all documents and notices relevant to any underwriting decisions, including Mortgage Review Committee decisions. The lender will also retain all records relating to its fair lending compliance program, including documents concerning its employee training on fair lending, mortgage production, employee recruitment, and compliance activities, as they relate to black and Hispanic borrowers and potential borrowers.
4. To fairly monitor the mortgage company's processing and evaluation of home mortgage loan applicants under this Consent Decree, the United States may, from time to time, seek and be provided access to individual home mortgage loan application files and related records such as the minutes of the lender's Mortgage Review Committees, provided such requests are reasonable and are made upon reasonable notice and in writing to the mortgage company. The United States will keep all records and information relating to loan applicants confidential to protect the applicants, privacy rights. If the United States identifies any concerns with respect to the mortgage company's compliance with this Consent Decree in its treatment of home mortgage loan applicants, it will promptly notify the lender of its concerns and seek to resolve them.

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Shawmut Mortgage Settlement

http://www.usdoj.gov/crt/housing/documents/shawmutsettle.htm

5. The mortgage company will report its progress under this Consent Decree to the Civil Rights Division of the United States Department of Justice on a semi-annual basis for the first year, and annually thereafter for the next two years. All reports will be submitted to the United States within 30 days after the close of each reporting period and will include the following information:
a. A general report on the mortgage company's performance, in marketing and outreach to potential borrowers, and in its processing and underwriting of black and Hispanic applicants for mortgage credit. This report should discuss, among other things, the lender's advertising, marketing, mortgage production, employee recruitment, compliance activities, underwriting, and Mortgage Review Committee activities, as they relate to black and Hispanic borrowers and potential borrowers; and
2. A report in machine-readable form from its automated loan tracking system for all home mortgage loan applicants. The variables to be included in the reports will be agreed upon by the parties prior to the first reporting period.
6. Copies of all notices, correspondence, reports, or documents required to be provided by one party to the other under this Consent Decree will be mailed to the following addresses:
For the United States:
Chief, Housing and Civil Enforcement Section Civil Rights Division U.S. Department of Justice P.O. Box 65998 Washington, DC 20035
For the Shawmut Mortgage Company
Director of Compliance 433 South Main Street West Hartford, CN 06110
IV. COMPENSATORY RELIEF
7. The mortgage company will place Nine Hundred and Sixty Thousand Dollars ($960,000.00) into a Shawmut Mortgage Company Consent Decree Compensation Fund to be administered at the direction of the United States. The purpose of this fund is to compensate those who were injured by the mortgage company's practices during the period January 1990 through October 1992. It is agreed and understood between the patties that $160,000 of the compensation fund is to be paid by the mortgage company in lieu of civil money penalties that would have been payable, if assessed, to the United States Treasury pursuant to Section 5(m) (1) (A) of the Federal Trade Commission Act, Section 704 (c) of the Equal Credit Opportunity Act, and Regulation B. The compensation fund will be administered as follows:
a. the lender's personnel will review all loan files of rejected black and Hispanic applicants under the review standards that have been used by the Mortgage Review Committee since October 1992;
2. the mortgage company will then compile a list of those applicants who would have been accepted or made counteroffers, and state its reasons for affirming all loan denials for black and Hispanic applicants during the period January 1990 through October 1992; and
3. the United States will then review the files and the reasons for continued denial of those not identified as eligible for compensation and will have the right to add any whom it believes should be included as payees. The United States will also review the circumstances surrounding the denials of the payees' applications, and will identify any persons who were unusually damaged by the denial and who may, therefore, be entitled to additional compensation (not to exceed a total of $15,000 for any individual).
8. The mortgage company will then notify all payees by registered mail, return receipt requested, of the nature of

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http://www.usdoj.gov/crt/housing/documents/shawmutsettle.htm

the settlement and of their right to receive compensation, and will include a copy of the Consent Decree with the notice. It will notify the United States of the names and last known addresses of all payees from whom no return receipt has been received within thirty days of the mailing of the notice, and the United States will have an additional thirty days to locate these payees and provide them with a copy of the notice. The notice will include a requirement that each payee respond within 60 days of receipt of the notice and execute a waiver, in the form set forth in attachment 2, of any additional rights to proceed against the mortgage company on claims arising from the same facts. Each payee will receive $10,000, except where special circumstances warrant a greater payment (as described in paragraph 7) or a lower amount (if the United States agrees that any lower payments are warranted by the circumstances of the denials). The mortgage company will issue checks to each payee for the designated amount.
9. The disposition of any amount remaining in the fund after all payees have been compensated will be determined by the United States. In the event that the fund is insufficient to compensate all payees according to the provisions of this decree, the mortgage company will supplement the fund to provide the required compensation.
V. SUCCESSOR IN INTEREST
10. The terms of this Consent Decree will bind any successor in interest to the Shawmut Mortgage Company as to employees, branches, and offices now under the control of the mortgage company, branches subsequently acquired by the mortgage company, and any branches into which the mortgage company branches are consolidated. It is assumed by the parties that any successor in interest will voluntarily implement the provisions of this Consent Decree in all successor-in-interest branches located in the lender's current service area, but if any such successor in interest declines to voluntarily implement the provisions of the Decree in all such branches and offices, it shall present to the United States its proposed plan of operation. If the United States concludes that the proposed plan of operation will hinder the attainment of the goals of this Consent Decree it shall present such concerns to the successor in interest and attempt to resolve the differences voluntarily. Any differences that cannot be resolved by the parties may be presented to the court for resolution.
VI. MODIFICATION
11. This Consent Decree may be modified by written agreement of the defendant, the Department of Justice, and the Federal Trade Commission.
VII. RETENTION OF JURISDICTION
12. For a three-year period, this Court will retain jurisdiction for purposes of enforcing all provisions of this Consent Decree. The parties to the Decree will endeavor in good faith to resolve informally any differences regarding interpretation and compliance with this Consent Decree prior to bringing such matters to the court for resolution. Thereafter, the court will retain jurisdiction for an additional seven-year period solely for the purpose of enforcing the general injunctive provision.
VIII. COSTS
13. Each party to this litigation will bear its own costs.
It is so ORDERED, ADJUDGED, and DECREED this ________ day of 1993.
UNITED STATES DISTRICT JUDGE
The undersigned apply for consent to the entry of this Order:
For the United States:
JANET RENO ATTORNEY GENERAL

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JAMES P. TURNER ACTING ASSISTANT ATTORNEY GENERAL
PAUL F. HANCOCK ALEXANDER C. ROSS JEFFERY M. SENGER Attorneys, Housing and Civil Enforcement Section Civil Rights Division U.S. Department of Justice P.O. Box 65998 Washington, DC 20035-5998 (202) 514-4713
CHRISTOPHER F. DRONEY UNITED STATES ATTORNEY
JOHN B. HUGHES Chief, Civil Division 450 Main Street, Room 328 Hartford, CT 06103 (203) 240-3270
DAVID MEDINE Associate Director PEGGY L. TWOHIG Assistant Director SANDRA M. WILMORE Attorney Division of Credit Practices Federal Trade Commission Washington, D.C. 20580 (202) 326-3210
For the Shawmut Mortgage Company:
ROBERT S. BENNETT WILLIAM J. SWEET, JR. ANDREW L. SANDLER Skadden, Arps, Slate Meagher & Flom 1440 New York Avenue, N.W. Washington, D.C. 20005 (202) 371-7103 Attorneys for the Shawmut Mortgage Company

http://www.usdoj.gov/crt/housing/documents/shawmutsettle.htm

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 SDSD District Version 1.3 - Docket Report

https://ecf.ctd.uscourts.gov/cgi-bin/DktRpt.pl?728913445488763-L_353_0-1

CLOSED
U.S. District Court United States District Court for the District of Connecticut (New Haven)
CIVIL DOCKET FOR CASE #: 3:93-cv-02453-AVC

USA v. Shawmut Mortgage Assigned to: Judge Alfred V. Covello Demand: $0 Cause: 42:405 Fair Housing Act Plaintiff USA
V. Defendant Shawmut Mortgage Co.

Date Filed: 12/13/1993 Date Terminated: 12/14/1993 Jury Demand: None Nature of Suit: 443 Civil Rights: Accomodations Jurisdiction: U.S. Government Plaintiff
represented by John B. Hughes U.S. Attorney's Office-NH 157 Church St., 23rd floor New Haven, CT 06510 203-821-3802 Fax: 203-773-5373 Email: john.hughes@usdoj.gov LEAD ATTORNEY ATTORNEY TO BE NOTICED
Paul F. Hancock U.S. Department Of Justice Housing & Civil Enforcement Section PO Box 65998 Washington, DC 20035-5998 LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Andrew L. Sandler Skadden, Arps, Slate, Meagher & Flom 1440 New York Ave., N.W. Washington, DC 20005-2111 202-371-7500 LEAD ATTORNEY ATTORNEY TO BE NOTICED
Donn A. Randall Bulkley Richardson & Gelinas One Post Office Sq. Suite 3700 Boston, MA 02109

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617-292-2820 LEAD ATTORNEY ATTORNEY TO BE NOTICED
Robert S. Bennett Skadden, Arps, Slate, Meagher & Flom 1440 New York Ave., N.W. Washington, DC 20005-2111 202-371-7500 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Date Filed 12/13/1993 12/13/1993
12/13/1993 12/13/1993 12/13/1993 12/13/1993
12/13/1993 12/13/1993 12/13/1993 12/13/1993 12/13/1993 12/15/1993

#

Docket Text

1 COMPLAINT Filing Fee $ 120.00 Receipt # 136144 (Former Employee) (Entered: 12/15/1993)
2 ORDER on Pretrial Deadlines handed to counsel. Discovery cutoff 6/14/94 ; Dispositive Motions due 7/21/94 Amended Pleadings due 2/23/94 Motions to Dismiss due 3/23/94 (Former Employee) (Entered: 12/15/1993)
3 APPEARANCE of Attorney for Shawmut Mortgage -- Donn A. Randall (Former Employee) (Entered: 12/15/1993)
4 APPEARANCE of Attorney for Shawmut Mortgage -- Robert S. Bennett (Former Employee) (Entered: 12/15/1993)
5 MOTION by Shawmut Mortgage for Andrew L. Sandler and Robert S. Bennett to Appear Pro Hac Vice (Former Employee) (Entered: 12/15/1993)
ENDORSEMENT granting [5-1] motion for Andrew L. Sandler and Robert S. Bennett to Appear Pro Hac Vice ( signed by Judge Alfred V. Covello ) (Former Employee) (Entered: 12/15/1993)
7 JOINT MOTION by USA, Shawmut Mortgage for DECREE of consent (Former Employee) (Entered: 12/15/1993)
ENDORSEMENT granting [7-1] joint motion for DECREE of consent ( signed by Judge Alfred V. Covello ) (Former Employee) (Entered: 12/15/1993)
8 ANSWER to Complaint by Shawmut Mortgage (Former Employee) (Entered: 12/15/1993)
9 CONSENT JUDGMENT/DECREE: see for details ( signed by Judge Alfred V. Covello ) (Former Employee) (Entered: 12/15/1993)
Case closed (Johnson, D.) (Entered: 12/21/1993)
6 APPEARANCE of Attorney for Shawmut Mortgage --Andrew L. Sandler (Former Employee) (Entered: 12/15/1993)

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 Fair Lending Enforcement Program

http://www.usdoj.gov/crt/housing/bll_01.htm

Underwriting Discrimination
Discrimination in underwriting -- the process of evaluating the qualifications of credit applicants -- was the issue in our investigations leading to suits against Decatur Federal Savings & Loan Association in Atlanta, The Northern Trust Company in Chicago, and First National Bank of Doña Ana County in New Mexico. United States v. Decatur Federal Savings & Loan Association, Case No. 1 92-CV-2198-CAM (N.D. Ga. 1992); United States v. The Northern Trust Company, Civil Action No. 95C 3239 (N.D. Ill. 1995); United States v. First National Bank of Doña Ana County, Civil Action No. 97-0096 HB (D.N.M. 1997). Our attention was focused on these institutions by Home Mortgage Disclosure Act (HMDA) statistics showing that African-American and Hispanic applicants were rejected for mortgage loans at significantly higher rates than were white applicants. When our lawyers examined loan files, they uncovered disturbing evidence that bank employees were providing assistance to white applicants that they were not providing to African-American and Hispanic applicants. Loan officers often did not help minority applicants explain negative information on their credit reports and document all of their income. Similar loan officer behavior was responsible for the inordinately high denial rate of African-American applicants underlying the Federal Reserve Board's referral to us of the Shawmut Mortgage Company in Boston. United States v. Shawmut Mortgage Company, Case No. 3:93CV-2453 (AVC) (D. Conn. 1993). The relief we obtained in these four underwriting suits included fair lending training for loan officers, advertising and marketing to minority communities, "second reviews" of rejected minority applications, and new bank branches in minority neighborhoods. Our lawsuits against these lenders, and follow-up bank examinations by the regulatory agencies, have focused lending industry attention on this issue and, we hope, encouraged lenders to institute a variety of programs to prevent disparate treatment.

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