A mortgage company has agreed to pay more than $3.5 million to settle allegations by federal prosecutors that it charged higher interest rates and fees on mortgages to nonwhite borrowers than to whites with similar financial backgrounds, federal officials announced on Tuesday.
Nearly all of the settlement money to be paid by the company, GFI Mortgage Bankers, will go to 600 black and Hispanic borrowers who federal authorities said paid unfairly high rates from 2005 through 2009. The settlement also included a fine of $55,000, the maximum under the federal Fair Housing Act.
The company, which concentrates on the New York, New Jersey and Florida markets, agreed to develop new policies to reduce the discretion of its loan officers in deciding fees and rates.
“With the settlement we announce today, the hundreds of victims of lending discrimination committed by GFI will be made whole,” said Preet Bharara, the United States attorney in Manhattan, where GFI is based.
GFI, which says on its Web site that it originates more than $1 billion a year in mortgages, admitted that an analysis by the federal government showed that it charged higher rates and fees to black and Hispanic borrowers than to white borrowers.
The settlement was signed for GFI by Abraham Eisner, who has led the company’s mortgage business since it was founded in 1983. Mr. Eisner referred questions to a lawyer.
Andrew L. Sandler, a Washington lawyer who represented GFI in the lawsuit, said the company denied that the discrepancy in average rates cited by the government amounted to discrimination. He said the company had wanted to settle the case, but could not afford to do so until the government offered a lower settlement figure last week.
“GFI can now return its full focus to its mortgage lending business,” Mr. Sandler said.
In court papers, prosecutors said GFI’s mortgage business increased rapidly, from 974 mortgages originated in 2005 to 2,270 in 2009, mostly in New York and New Jersey.
The average interest rates it charged to black borrowers each year in the review period were 0.19 to 0.41 percentage points higher than what it charged white borrowers with similar financial backgrounds, prosecutors said. Hispanic borrowers on average paid as much as 0.23 points more than whites.
Fees on the mortgages followed the pattern, with black borrowers paying as much as 1.05 points more than similarly situated white borrowers.
GFI’s loan officers could base rates and fees on their analyses of the borrowers’ ability to repay, and their compensation structure created an incentive to charge higher rates wherever possible, the government said. The company agreed to remove that incentive and train its officers in objective rate-setting criteria.
Mr. Sandler said the loans in question were not subprime loans, which are more expensive loans created for people whose credit histories make obtaining a traditional loan unlikely.
GFI, which sells the loans it originates, was one of the first mortgage lenders in the city to venture into subprime loans, long before that category of mortgage lending came to be blamed for the financial collapse of 2008.
In a 1997 article in The New York Times about the growing subprime market, Mr. Eisner was quoted on how he had led GFI into a new area that helped more people own homes. He described GFI’s expanding subprime business, including “no-document” loans, as “a different mentality, different guidelines; almost like two separate companies.”
“We’ve created new products for people who have glitches, hairy credit,” Mr. Eisner said at the time. “No-doc means all we need is your name, address and Social Security number, depending on your credit history.”
The GFI settlement comes after several larger lenders settled with the Justice Department over similar claims, including a $175 million agreement by Wells Fargo that was announced in July.
“All of this discriminatory lending did not happen in a vacuum,” said Josh Zinner, who monitors lending bias in the city for the Neighborhood Economic Development Advocacy Project. “There was a huge pattern of this across a whole bunch of mortgage companies and banks.”
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