According to federal prosecutors, Hudson City Savings Bank opened few branches in black and Hispanic neighborhoods around the New York and Philadelphia regions where it does much of its mortgage business. It placed few of its loan officers in these communities. It worked with hardly any mortgage brokers there, either. And its marketing was mostly elsewhere, too.
On Wednesday, the Department of Justice and the Consumer Financial Protection Bureau jointly ordered the bank to pay about $33 million to make amends for these patterns, in one of the largest "redlining" settlements the government has ever reached.
The case, though, is notable not just for the size of the bank — Hudson City has assets of more than $35 billion — or its location, centered around the largest housing market in America. Hudson City, unlike several other banks recently accused of discrimination, wasn't charged with denying loans to qualified minorities, or jacking up their interest rates. In a subtle but more insidious claim, the government says it was "structuring its business so as to avoid majority-Black-and-Hispanic neighborhoods."
Hudson City, in other words, was set up to ensure that few borrowers in minority neighborhoods ever even applied in the first place, according to prosecutors.
"At the core of this case is a pretty simple story," said Paul Fishman, the U.S. attorney in New Jersey whose office worked on the case. "From 2009 to 2013, if you lived in a majority-black or Hispanic neighborhood and you wanted to apply for a mortgage, Hudson City Savings Bank was not the place to go. If you wanted not just to apply for one, but actually to get one so you could buy a house, your time would have been spent much better if you went to another bank."
In the consent order announced Wednesday, Hudson City admitted no liability and said it believed it had treated all of its customers fairly. The bank agreed to a settlement, it said, "solely for the purpose of avoiding contested litigation." It agreed to pay $25 million in loan subsidies to borrowers in minority neighborhoods and to invest in advertising and outreach there. The bank also must open two new branches in minority neighborhoods. And it will pay a $5.5 million penalty to the Consumer Financial Protection Bureau's Civil Penalty Fund.
Justice officials treated the case as an illustration of a broader practice of banking discrimination — and of the government's intent to crack down on it. DOJ officials said the agency has more open redlining investigations now than at any time in the last six years.
"Redlining is not a vestige of the past," said Vanita Gupta, head of the Justice Department's Civil Rights Division. "Banks continue to build and structure their lending operations in a way that avoids or fails to really meaningfully serve communities of color."
The government's complaint against Hudson City is a handbook of the many ways it's possible to do this. Between 2004-2010, the bank opened or acquired 54 branch locations; all but three were located outside minority neighborhoods. In this map of the New York area from the government's complaint, those branch locations are shown atop minority census tracts. Red areas have a black and Hispanic population greater than 80 percent. Orange areas have a black and Hispanic population above 50 percent:
The bank didn't accept mortgage applications at all of its branches, requiring some borrowers to travel to locations that happened to be farther away and in overwhelmingly white communities. The bank also offered a home improvement loan program for low-to-moderate income families, but the advertising for it specified that closings could only occur at one branch. It was in Fairfield, Conn., where the median income is $117,000 and the population is 92 percent white.
In the broader New York City metro, Hudson City used 162 mortgage brokers; just 12 were headquartered in minority census tracts. Not a single one of its 47 brokers in the Camden, N.J., metro area were based in such communities. Here are its broker locations throughout the region:
Not surprisingly then, from 2009-2013, less than 1 percent of the bank's loan applications in the Camden metro were from minority neighborhoods. Less than 5 percent of its applications in the New York metro were for such properties. From 2009-2013, here are all of the bank's mortgage applications:
Isolated from the first two maps, this last one might look as if it tells a different story — one where families in minority neighborhoods simply weren't interested in applying for loans. The other two maps, though, suggest not a shortage of interest, but potentially a lack of opportunity. And, as the government argues, many of Hudson City's competitors were busy over this same time fielding applications from these very same communities.