Financial Services Law Developments: Federal Reserve Study Finds No Evidence of Disparate Impact Discrimination in Loan Mods

Sunday, January 16, 2011

Federal Reserve Study Finds No Evidence of Disparate Impact Discrimination in Loan Mods

The San Francisco Federal Reserve recently issued the results of its study, conducted with assistance by the Institute for Research on Poverty at the University of Wisconsin-Madison, regarding potential disparate impact discrimination in the area of mortgage loan modifications.

A copy of the report is available at:
http://www.frbsf.org/publications/community/wpapers/2010/who-receives-mortgage-modification.pdf

The study found no evidence of disparate impact discrimination.

Specifically, the Federal Reserve study concludes as follows:

"The results suggest although loan modifications remain a rarely used option among the servicers in these data, there is no evidence that minority borrowers are less likely to receive a modification or less aggressive modification. These borrowers are more likely to be delinquent, but controlling for delinquencies we find no evidence of disparate impact. We also find that preliminary performance of loans post-modification is positive, particularly for minority borrowers."

The study also notes that, "[g]enerally modifications involve modest interest rate reductions and increasing loan balances."

The Federal Reserve study used data on 105,769 non-agency securitized subprime loans made in 2005. The researchers examined the incidence of defaults and modifications among loans managed by one large trustee of securitized loans covering 94 loan servicers in California, Oregon and Washington. HMDA data was used to assess borrower characteristics.

Let me know if you have any questions. Thanks.

Ralph T. Wutscher

Kahrl Wutscher LLP

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The Editor's Bio

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, 33rd Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
RWutscher@MauriceWutscher.com
https://www.MauriceWutscher.com/

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.