January17,2013 JosephA.Smith OfficeofMortgageSettlementOversight 301FayettevilleSt.,Suite1801 Raleigh,NC27601 Viaelectronicmail DearMr.Smith: ThankyouforyourongoingdialoguewithmembersoftheForeclosureWorkingGroupofAmericansfor FinancialReform.Weappreciateyoureffortstoensurethatthenationalmortgagesettlement agreementisimplementedfairlyandeffectively.Weparticularlyappreciateyourcontinued considerationoftheproposalforafairlendingmetric,andyourwillingnesstoconsiderother proposalsfordatacollectionthatwebelievewillpromotetheeffectivenessofthissettlement agreement. Aswehavestated,wehopetheMonitorsofficewilluseitsauthoritytoaddafairlendingmetricand generallyincreaseitscurrentdemandsfordataandtransparencyfromthesettlingmortgageservicers.

Weareconcernedthatthecurrentdatacollectionplans,withoutametricoradditionalloanleveldata collection,failtocapturesufficientinformationaboutthegeographyordemographicsofborrowers receivingreliefunderthesettlement.Suchdataisneededtoensurethatthesemortgageservicers complywiththesettlementsprohibitionofdiscriminatoryconduct,aswellasthebanksfairlending obligationsundertheFairHousingActandtheEqualCreditOpportunityAct.Itisalsoneededtoensure thatthisagreementhasthegreatestpossibleimpactonthenationsongoingforeclosurecrisisand thatreliefisfairlyprovidedtocommunitiesofcolorandotherhardesthitcommunitieswhowere targetedforsubprimeandpredatorylendingandarenowreelingfromparticularlyhighforeclosure rates. WerealizethattheMonitoralonecannotprovideallofthedataweneedtounderstandandremedythe nationsforeclosurecrisis.Butyouroffice,incollaborationwiththeotherfederalandstateagencies thatarecollectingandanalyzingmortgagelendingdata,canmakeasignificantcontributionto promotingfairlendingpracticesthatbenefitborrowersandlendersalike. TheSettlementRequiresNonDiscriminatoryMortgageLendingPractices: Federalandstateauthoritiesannouncedthisagreementwiththepromisethatitcouldhelpend mortgageservicingabusesandpreventunnecessaryforeclosures.Inexchangeforwaiversofliabilityon substantiallegalclaims,thesettlingbankspromisedtoinvestbillionsofdollarstowardalleviatingthe nationsforeclosurecrisis.Thebanksspecificallyagreedtheywouldnotprovidethisreliefthrough policiesthatareintendedto(i)disfavoraspecificgeographywithinoramongstatesthatareapartyto theConsentJudgmentor(ii)discriminateagainstanyprotectedclassofborrowers.ConsentJudgment Ex.D,at1. 1

ThisprohibitionofdiscriminatoryconductintroducesandframestheConsentJudgmentsconsumer reliefrequirements.Theprominenceofthislanguageisappropriate:preventingdiscriminatory mortgagepracticesisnecessaryforconsumerrelieftobefairandeffective,fornumerousreasons. First,discriminatorylendingpracticeswerecentraltothesubprimelendingbubbleandarootcauseof thenationscurrentforeclosurecrisis.Thedevastatingeffectsofdiscriminatorylendingonhomeowners andcommunitiesarewelldocumented,andillustratedbythenumerousfairlendingsettlements recentlyannouncedbytheDepartmentofJustice.ImplicitinthetermsoftheSettlementisthat remediallendingeffortsmustsimilarlybecarriedoutincompliancewiththeFairHousingandtheEqual CreditOpportunityActs.TheinclusionofspecificlanguageintheSettlementprohibitingintentional discriminationreinforces,andinnowaydiminishes,thosebroaderfairlendingobligations. Inotherwords,giventhatpriorlendingpracticeshaveproducedadisproportionatelyadverseeffecton minorityborrowersandcommunitiesofcolor,monitoringofremedialeffortsmust,ataminimum, ensurethatremediallendingpoliciesdonotperpetuatepastdiscriminationbycontinuingtodisfavor membersofprotectedclassesor,byneglect,adverselyimpactcommunities.Toourknowledge,no otheragencyorbodyhasthejurisdiction,authority,resourcesorstandingtoevaluatethesettlements remediallendingactivitiesinamannersufficienttoassureongoingcompliancewiththeseoverallfair lendingobligations. Second,ongoingresearchsuggeststhatthemanycommunitiesofcolorthatexperiencedthehighest numbersandratesofforeclosurearenowsufferingfromlowerthanaverageratesofnewlending.Asa result,theforeclosurecrisisinthesecommunitiesisparticularlyunlikelytoberesolvedbymarketforces alone.Unlesshomeownersreceivethekindofconsumerreliefpromisedbythenationalmortgage settlement,thesecommunitieswillsufferfromincreasingblight. MonitoringComplianceRequiresaFairLendingMetricandAdditionalDataCollection: WebelievethatasMonitoryoushoulduseyourauthoritytoensurethatthesettlementhasthegreatest possibleimpactforconsumers,andmeetstheexpectationsofthestateandfederalpartiestothis agreement.Thisrequiresensuringthatbanksareprovidingfairandadequaterelieftocommunitiesof colorandotherhardesthitcommunities.Inaddition,theMonitorcannotconfirmcompliancewiththe settlementwithoutproofthatthesettlingpartieshaveimplementedtheagreementthroughnon discriminatorypolicies.Otherwise,thefairlendingprotectionscitedabove,whichwereprominently includedinthefinalagreementbytheparties,wouldbeeffectivelywrittenoutofthesettlement. Unfortunately,despitetheimportanceoftheserequirements,thebanksarenotprovidingthepublic withanydemographicorgeographicdatabelowthestatelevel(exceptforcountyleveldatain California)onconsumersreceivingrelief.Withoutdemographicandcensustractleveldata,thereisno waytodeterminewherethereliefisgoing,orwhethertheservicerspoliciesfordistributingreliefmeet basicprinciplesoffairnessandnondiscriminatoryintent.Toensurethatthebanksaremeetingtheir fairlendingobligations,theMonitorsofficeshouldcollectandpublishloanleveldata,andnotonly aggregatedstatelevelnumbers.TheMonitorshouldalsotakeadvantageoftheprovisioninthe

settlementexpresslyauthorizinganewmetrictoensurecompliancewiththesefairlendingobligations. SeeConsentJudgmentExhibitE,C.12. Inmakingtheserecommendations,werecognizethatthesettlementlanguageprohibitstheMonitor fromaddinganoutcomesbasedmetric.However,asexplainedatgreaterlengthinourletterof October22,2012,webelievethattheMonitorcannonethelessrequestmeaningfulevidenceofthe partiescompliancewiththesefairlendingrequirements.Forexample,aprocessbasedmetriccan stillrequestdataensuringthatmortgageservicerstraining,recruitmentandcompensationpolicies encouragetheirstafftoprovideequalaccesstoallcustomers,regardlessofrace,nationality,language proficiency,gender,disability,incomelevel,orgeography.Aprocessbasedmetriccanalsoensurethat servicershavepoliciesinplacetoensurethathomeownersdonotmissoutonreliefduetolimited Englishproficiency.OtherexamplesareincludedinourletterofOctober22,2012. WealsorecognizethattheMonitorislimitedtothreenewmetricsunderthetermsofthesettlement. Bynomeansshouldoursupportforafairlendingmetricbeconstruedasalackofsupportforimproving oversightoverotheraspectsofthesettlementagreement,suchasservicersobligationtoenddual tracking,makeappropriateloanmodificationdecisions,andprovideasinglepointofcontactto borrowersseekingassistance.Webelievetheserequirementsaremutuallyreinforcing,notmutually exclusive.Andweareeagertoworkwithyourofficetopromoteeffectivecompliancewithallofthe agreementsservicingstandards.However,weareconcernedthatthecurrentmonitoringplanlacks anyabilitytoensurenondiscriminatoryrelief.Afairlendingmetric,evenwiththelimitationsimposed bythesettlementagreement,willbeanimportantsteptowardpromotingandmeasuringcompliance. *** Forthesereasons,weurgeyouto:addanewmetrictoaggressively,immediately,andperiodically monitorfairlendingconcerns,andmakethatprocesstransparenttothepublic;collectandpublicly reportloanleveldemographicandgeographicdatabyserviceronhomeownerrelief,topermit adequateoversightofsettlementcompliance;andauditfairlendingcompliancebeforerelievinganyof theservicersfromtheirobligationsunderthesettlement.Wealsohopeyouwillexaminetheseissuesin yourassessmentsofthenationalmortgagesettlement,andmakerecommendationsforimproving futureagreementstomakethemstrongerandmoreeffectiveforpromotingfairandresponsible lending.

Weappreciateyourcontinuingeffortstomaintainafairandtransparentmonitoringprocess,andlook forwardtoworkingwithyouandthemonitoringcommitteeasyouimplementthenationalmortgage settlementagreement.PleasecontactMarkLadovoftheBrennanCenterforJusticeat mark.ladov@nyu.eduorbyphoneat6462928354withanyquestions,orifyouwouldliketofollowup onthesesuggestionswiththeworkinggroup. Sincerely, TheMembersoftheForeclosureWorkingGroupof AmericansforFinancialReform cc: MembersoftheMonitoringCommittee