The complaint and allegations

The largest bank headquartered in Los Angeles, holding over $90 billion worth of assets and specializing in commercial, consumer, mortgage and wealth management banking services, just landed in hot water with the Department of Justice because of their unlawful redlining practices. They settled for an historic $31 million in January 2023.

The lender, City National Bank, avoided making mortgages and mortgage services available in majority-Black and Latino neighborhoods in Los Angeles from 2017 to 2020.

According to the Justice Department’s complaint, during 2017 through 2020, the bank:

  • maintained only three of its 37 branches in minority neighborhoods;
  • generated applications from their existing customers instead of marketing or advertising in minority neighborhoods;
  • failed to provide adequate staff resources to serve the mortgage lending needs of residents from minority neighborhoods; and
  • failed to act on internal reports indicating fair lending and redlining risk.

As a result of this conduct, the bank achieved disproportionately low numbers of mortgages and mortgage applications from minority areas compared to similarly situated lenders.

For example, City National received 8,593 mortgage applications within Los Angeles from 2017 through 2020. Of those applications, a mere 8% came from residents of majority-Black and Latino Census tracts. Meanwhile, peer lenders during the same period generated 46% of their applications from Black and Latino Census tracts.

These figures demonstrate a statistically significant failure by City National Bank, relative to its lender peers, to draw applications for mortgages and affirmatively provide mortgage services to residents from minority neighborhoods on a non-discriminatory basis.

The settlement and restitution

Under the Justice Department’s consent order filed with the U.S. District Court for the Central District of California, City National Bank has agreed to:

  • provide at least $29.5 million for a loan subsidy fund for residents of majority-Black and Latino neighborhoods in Los Angeles;
  • open one new branch in a majority-Black and Latino neighborhood and have at least four mortgage loan originators (MLOs) serving majority-Black and Latino neighborhoods; and
  • conduct a research-based study identifying the financial needs for residents in majority-Black and Latino Census tracts within Los Angeles.

The settlement with City National Bank is the largest redlining settlement to ever be secured in the Justice Department’s history. City National is a subsidiary of Royal Bank of Canada, one of the world’s largest banks.

Related article:

Fannie Mae settles fair housing lawsuit for $50 million

Combatting redlining

While redlining

has become a catchall term for racist real estate practices, its precise definition and history is resurfacing to help real estate professionals combat the issue. Basically, redlining is about the improper allocation of our nation’s wealth among all the population, not just a pick-and-choose business choice for lenders as money is not a commodity, it is fiat created for everyone to have and to use. [Federal Reserve Bank of St. Louis]

Redlining is a failure to provide financing in specific communities based on demographics. The practice derives its name from the color-coded maps lenders used to grade the riskiness of mortgages in specific neighborhoods. In truth, the maps identified neighborhoods where minorities lived, allowing real estate professionals to further segregate homebuyers at underwriting for a mortgage origination.

Lawmakers outlawed the practice with the Housing Financial Discrimination Act of 1977 since it adversely affects the health, welfare and safety of residents. In fact, the California legislature views residents’ choice in housing opportunities within a free market as vital to the entire state’s economic health. [See RPI e-book Real Estate Principles, Chapter 9]

Substantively, a lender who denies mortgage applications based on the characteristics of a community discourages homeownership in that community. Thus, redlining leads to a decline in the quality and quantity of housing in areas where financing becomes generally unavailable.

Related article:

Redlining: its history and lasting impacts

Tearing down the legacy of redlining starts with real estate licensees. To become proactive, ask your clients whether they might want to file a claim with the California Business, Consumer Services and Housing Agency against a state-regulated lender when they express a belief their mortgage application was denied due to:

  • their race, color, religion, sex, marital status, national origin, ancestry or any of the other applicable protected classifications; or
  • trends, conditions or characteristics of the community where the real estate is located.

To further combat redlining and housing discrimination like the systemic disregard for providing equal access to mortgages levied against City National Bank, the California legislature recently imposed additional implicit bias training on real estate professionals for both continuing education (CE) and licensing courses.

The new CE course requirements apply to real estate agents and brokers with licenses expiring on or after January 1, 2023.

The new licensing course requirements apply to those who take the Department of Real Estate (DRE) State Exam after 2023. Anyone who is looking to apply in 2024 to take the DRE State Licensing Exam will need to complete a new Real Estate Practice course with the additional implicit bias and fair housing education.

Editor’s note — firsttuesday is expecting DRE approval soon for the new Real Estate Practice course needed in 2024. To enroll in firsttuesday’s two-hour Implicit Bias training for DRE license renewal CE, visit the order page.

Related article:

Implicit bias and fair housing soon required for licensing courses

Stay ahead of California real estate’s rapidly shifting legal landscape. Receive notice of this new course release in your inbox by subscribing to Quilix, the weekly firsttuesday newsletter for California real estate professionals.

Want to learn more about avoiding discriminatory housing practices? Click the image below to download the RPI book cited in this article.