Following Fair Lending Investigation, NYS DFS Issues Report, Recommendations, and Mortgage Lender Best Practices

The New York State Department of Financial Services (DFS) issued a report on February 4, 2021, detailing its investigation of the mortgage lending market in the Buffalo metropolitan area. The report includes findings about a "distinct lack of lending" by mortgage lenders, particularly nonbank lenders, in neighborhoods with majority-minority populations and to minority homebuyers in general.

The Report

DFS used Home Mortgage Disclosure Act (HMDA) data to map and analyze mortgage lending patterns of Buffalo area mortgage lenders—which include very large national and regional banks, as well as small, local, and community banks, and many nonbank lenders—from 2016 through 2019. Houses outlined in redThe data revealed that:

  • just under 10% of loans were made to minority borrowers, even though minorities make up about 20% of the area's population;
  • nonbanks made loans in majority-minority areas at a lower rate than banks; and
  • several of the nonbank lenders made little to no effort to do business in majority-minority neighborhoods, do not have adequate fair lending compliance programs, and do not track whether, or how well, they are serving populations of color.

In addition, the nonbank mortgage lenders relied heavily on client referrals from real estate agents employed by affiliated real estate companies and independent companies for their business.


In response to these findings and nonbank lenders' increasing share of the home mortgage market, DFS is recommending legislative action to amend the state's banking law, the New York Community Reinvestment Act (NYCRA), to apply not only to banks but also to nonbank mortgage lenders. The NYCRA is largely equivalent to its federal counterpart and requires banks to identify the areas they serve and to track their success in serving all communities within a service area. Extending the NYCRA to nonbank lenders will obligate them to focus more on serving the entirety of the communities in which they operate resulting in an increase in lending to minorities and low income borrowers.

DFS is also recommending that the OCC and CFPB investigate Buffalo's federally-regulated institutions that appear to be performing poorly, based on the HMDA data, to determine whether fair lending violations are occurring. DFS has also asked the New York State Department of State to investigate whether real estate brokers and salespeople referring business to the nonbank mortgage lenders that DFS investigated are engaged in any prohibited discriminatory behavior that could be affecting lending patterns of the lenders.

Settlement with Nonbank Lender

DFS concluded and resolved an investigation of one nonbank mortgage lender found to have "weaknesses" in its fair lending and compliance that contributed to its "poor performance in lending to minorities and in majority-minority neighborhoods." DFS' investigation included testimony from the lender's management. While no intentional discrimination or violation of fair lending laws was found, the lender agreed to take steps to improve its service to the entire community, including, increasing marketing to minorities, conducting regular fair lending audits and employee training, and rolling out a financing assistance program for borrowers in majority-minority areas. DFS continues to investigate other Buffalo lenders and will announce findings as it resolves those cases. 

Fair Lending Best Practices

Finally, DFS surveyed western New York banks that have built robust fair lending programs, often in response to past regulatory action, and noted these elements of a successful program:

  • Robust fair lending compliance policies and practices, such as:
    • Meaningful engagement of senior management in fair lending programs and policy development and implementation
    • Periodic fair lending training for staff
    • A responsive and engaged compliance committee
    • Regular engagement of staff on CRA-related lending, with attention to improving performance
    • Regularly scheduled internal and third-party analysis of institutional lending data with prompt responses to findings
  • Specialized product and service offerings, including:
    • Products specifically designed for low- and moderate-income customers that may integrate subsidies and tailored underwriting standards
    • Lending programs focused on community revitalization and development
  • Community outreach and engagement efforts, for example:
    • Partnering with community organizations to understand community needs in the bank's service areas, and to connect with customers they previously did not
    • Enhanced attention to marketing content and reach including marketing targeted at underserved communities
    • Hiring loan officers specializing in community development and working with brokers who serve and have connections to communities the institution had not been reaching before
    • Providing educational programming to the community relating to home buying