Posted on September 20, 2012

Luther Burbank Savings Settles with DOJ over Alleged Loan Bias

E. Scott Reckard, Los Angeles Times, September 12, 2012

Luther Burbank Savings has agreed to spend $2 million to settle a federal government lawsuit accusing the real estate lender of practices that resulted in too few home loans for African American and Latino borrowers from 2006 to 2010.

The Santa Rosa-based thrift, with $3.6 billion in assets, did not admit wrongdoing. It lends mainly to owners of apartments, many of them in minority neighborhoods — a business the government did not challenge.

The allegations instead related to a $400,000 minimum loan amount Luther Burbank had set for a smaller business line that issued jumbo mortgages through independent brokers to low-risk borrowers.

The Justice Department said in a statement that the effect was to limit the percentage of home loans Luther Burbank made to minorities. In Los Angeles, for example, 5.8% of the mortgages in question went to blacks and Latinos during the five-year period compared with 31.8% at other prime lenders.

The settlement, filed Wednesday in federal court in Los Angeles, is designed to encourage lending in California communities where more than 50% of the residents are members of minority groups, the Justice Department said.

The settlement is the latest resulting from an Obama administration push to bring fair-lending cases and follows far larger settlements by Wells Fargo & Co. and Bank of America Corp.


The S&L has since done away with the $400,000 minimum and set up a separate division, Luther Burbank Mortgage, which offers traditional 30-year loans that are sold to Fannie Mae and Freddie Mac, the giant government-supported mortgage finance firms.