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 Posted - 06/03/2008 : 3:30:10 PM
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Mass. Sues H&R Block Over Mortgages to Minorities
By REUTERS
Published: June 3, 2008
Filed at 5:05 p.m. ET
BOSTON (Reuters) - Massachusetts authorities sued H&R Block Inc <HRB.N> on Tuesday, charging that its mortgage unit discriminated against black and Latino borrowers and escalated a crisis over property foreclosures in the state.
The lawsuit is the first by a U.S. state to accuse a subprime-mortgage lender of civil rights violations following the recent, nationwide wave of foreclosures of homes in poor, often black, neighborhoods.
The complaint, filed by Massachusetts Attorney General Martha Coakley in Suffolk Superior Court, accuses H&R's subprime-lending subsidiary, Option One Mortgage Corp, of engaging "in unfair and deceptive conduct on a broad scale."
It said the lender charged black and Latino borrowers, on average, several hundred dollars more in points and fees to close loans than similarly situated white borrowers, and that it targeted black and Latino consumers with marketing "that pushed the sale of predatory loan products."
"This price disparity is not explained by borrower credit scores or other risk-related characteristics," it said. "In some instances, the black or Latino borrowers paid double in points and fees than white borrowers paid."
Housing industry analysts said the suit could galvanize authorities in other states to act and may trigger more litigation against subprime-mortgage lenders in Massachusetts.
"I would suspect Martha Coakley's office is looking at other lenders as we speak," said Thomas Callahan, executive director of the Massachusetts Affordable Housing Alliance, a group that works with low and moderate income home buyers.
"There is increased scrutiny now," he added.
Officials at H&R Block, the country's biggest tax preparer, were not immediately available to comment on the suit.
H&R Block is refocusing on tax preparation after incurring about $1 billion of losses at Option One, which made home loans to people with poor credit. It no longer offers mortgages.
The suit accused Option One of selling "extremely risky loan products" that "significantly contributed to the foreclosure crisis in Massachusetts."
It seeks an injunction to force Option One and American Home Mortgage, which bought the right to service the loans, to halt all foreclosures in the state to give local authorities time to review each mortgage.
Option One made more than 30,000 loans in Massachusetts between 2004 and 2007. More than 5,700 of these loans were made to black and Latino borrowers, Coakley said in a statement.
Foreclosure filings in Massachusetts in the first four months of 2008 surged 1,165 percent from the same time in 2005, near the peak of the U.S. housing boom, according to data from the Warren Group, a research body that compiles housing data.
The suit also seeks to require the defendants to test and report on any racial disparities in lending-related activity.
"It puts an interesting new twist on the subprime lending crisis and I think a lot of new information will come to light about how white borrowers and people of color are treated very differently," said Elyse Cherry, who runs Boston Community Capital, a group that helps finance affordable housing.
The companies often agreed to finance homes even though the borrower put no money down, Coakley said. The lenders also did not require supporting documents to prove how much borrowers earned, which would ultimately dictate what they could afford to pay for loans, she added.
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