The Consumer Financial Protection Bureau (CFPB) has issued a compliance bulletin to remind creditors of their obligations under the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, to provide non-discriminatory access to credit for mortgage applicants using income from the Section 8 Housing Choice Voucher (HCV) Homeownership Program.
The Section 8 HCV Homeownership Program was created to assist low-income, first-time homebuyers in purchasing homes and also includes a rental assistance program. Through the Section 8 HCV Homeownership Program, participating Public Housing Authorities (PHA) may provide an eligible consumer with a monthly housing assistance payment (HAP) to help pay for homeownership expenses associated with a housing unit purchased in accordance with HUD’s regulations.
The CFPB has become aware of one or more institutions excluding or refusing to consider income derived from the Section 8 HCV Homeownership Program during mortgage loan application and underwriting processes. Some institutions have restricted the use of Section 8 HCV Homeownership Program vouchers to only certain home mortgage loan products or delivery channels.
ECOA and Regulation B prohibit creditors from discriminating in any aspect of a credit transaction against an applicant “because all or part of the applicant’s income derives from any public assistance program.” “Any Federal, state, or local governmental assistance program that provides a continuing, periodic income supplement, whether premised on entitlement or need, is ‘public assistance’ for purposes of the regulation. The term includes (but is not limited to) . . . mortgage supplement or assistance programs . . . .” As such, mortgage assistance provided under the Section 8 HCV Homeownership Program is income derived from a public assistance program under ECOA and Regulation B.
Regulation B further provides that “[i]n a judgmental system of evaluating creditworthiness, a creditor may consider . . . whether an applicant’s income derives from any public assistance program only for the purpose of determining a pertinent element of creditworthiness.” However, “[i]n considering the separate components of an applicant's income, the creditor may not automatically discount or exclude from consideration any protected income. Any discounting or exclusion must be based on the applicant's actual circumstances.”
Disparate treatment prohibited under ECOA and Regulation B may exist when a creditor treats applicants differently on a prohibited basis, for example, when a creditor excludes or refuses to consider Section 8 HCV Homeownership Program vouchers as a source of income or accept the vouchers only for certain mortgage loan products or delivery channels. ECOA and Regulation B may also be violated if an underwriting policy regarding income has a disproportionately negative impact on a prohibited basis, even though the creditor has no intent to discriminate and the practice appears neutral on its face, unless the creditor practice meets a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact.
An institution’s clear articulation of underwriting policies regarding income derived from public assistance programs; training of underwriters, mortgage loan originators, and others involved in mortgage loan origination; and careful monitoring for compliance with such underwriting policies can all help the institution manage fair lending risk in this area and comply with the requirements of ECOA and Regulation B. Such compliance will help increase access to credit for eligible Section 8 HCV Homeownership Program consumers and open the opportunity of homeownership to these low-income, first-time homebuyers.