SANTA ROSA -- Luther Burbank Savings has reached a $2 million settlement with the U.S. Department of Justice to resolve allegations that the lender discriminated on the basis of race and national origin.
The Justice Department alleged the institution discriminated by enforcing a $400,000 minimum loan amount for its wholesale single-family residential mortgage loan program from 2006 through mid-2011. By enforcing the minimum loan amount for that loan program, the department alleges that the thrift's policy "had a disparate impact on the basis of race and national origin," according to the Wednesday announcement, which is still subject to court approval.
The $2 million will fund programs providing financing to minorities and to fund Luther Burbank's efforts in financing smaller mortgages.
The Justice Department alleged that Luther Burbank, an institution with $3.66 billion in assets, continued to offer a mortgage loan product with a $400,000 minimum loan amount despite knowledge of a low level of lending to black and Hispanic borrowers. The department said that the threshold was directly attributable for that disparity.
Luther Burbank in a statement described the loan product in question as a highly specialized "jumbo" loan designed for high-net-worth individuals. Approximately 15 percent of the lender's portfolio included those non-traditional loans.
The lender said it was settling the matter solely to avoid litigation and "devote its resources to continuing to meet its commitment to fair and responsible banking in all the communities it serves."
"We believe it is in the best interest of our customers and the bank to accept the Agreed Order and avoid a long and costly litigation with the DOJ," said John Biggs, Luther Burbank president and CEO, in a statement. "We are proud of our record on nondiscriminatory lending, and we will do everything possible to make a positive difference in the communities within our marketplace."
Mr. Biggs said in an interview that Luther Burbank would not be providing additional comment at this time, in respect of the legal proceedings.
Luther Burbank originated few single-family residential mortgage loans to black or Hispanic borrowers and in majority-nonwhite areas as defined by the U.S. Census, according to the Justice Department. Specifically noting figures for the greater Los Angeles area, one of several regions where the Santa Rosa-based lender operates, the department said that 5.8 percent of Luther Burbank's single-family mortgage loans were made to black and Hispanic borrowers. Other prime lenders granted 31.8 percent of their loans to such borrowers during the same period.
The original complaint alleges that 5.2 percent of the lender's single-family residential loans in the greater Los Angeles area were made in census tracts with majority nonwhite residents, compared to 41.7 percent of such loans for other prime lenders.
Under the settlement, which admits no wrongdoing, Luther Burbank will create a new division, Luther Burbank Mortgage. The division will offer agency 30-year fixed rate mortgages to qualified borrowers.
The settlement requires that Luther Burbank invest $1.1 million in a special financing program for borrowers seeking loans of $400,000 or less. The lender will also invest $450,000 to partner with community-based organizations that provide financing and financial services to minorities in the affected areas, $300,000 for outreach to potential customers and $150,000 on consumer education and fair-lending training.
Luther Burbank is prohibited from implementing a $400,000 minimum loan policy. Since 2011, Luther Burbank has operated with a $20,000 minimum loan amount policy for single-family residential loans.
The thrift's counsel, BuckleySandler law firm Chairman Andrew Sandler, said in a statement that the case represented an aggressive application of the Justice Department's statistical analysis used to determine discriminatory loan practices.
The original lawsuit stemmed from a 2010 referral by the Office of Thrift Supervision, a regulator overseeing Luther Burbank at the time, to the Justice Department's Civil Rights Division. The Office of the Comptroller of the Currency now oversees the thrift.
The announcement is part of efforts related to President Obama's Financial Fraud Enforcement Task Force, which was launched in 2009 to aggressively investigate and prosecute financial crimes. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants and more than 2,700 mortgage fraud defendants.
Founded in 1983, Luther Burbank's principal activity is real estate lending, with an emphasis on apartment and commercial real estate loans. With headquarters in Santa Rosa, the lender operates seven other branches throughout California. In a statement, the thrift said that it was one of the top five multi-family lenders in majority-minority census tracts, and the number one lender in those areas in 2009.
