The Consumer Financial Protection Bureau (CFPB) issued a compliance bulletin in May to remind creditors of their obligations under the Equal Credit Opportunity Act (ECOA) and Regulation B to provide nondiscriminatory access to credit for mortgage applicants using income from mortgage assistance programs.

The statute and regulation prohibit creditors from discriminating against an applicant in any aspect of a credit transaction “because all or part of the applicant’s income derives from any public assistance program.”

The CFPB has become aware of possible ECOA violations involving the Section 8 Housing Choice Voucher (HCV) Homeownership Program, which assists low-income, first-time home buyers.

The Department of Housing and Urban Development funds the HCV Homeownership program. Participating local Public Housing Authorities that administer the program may provide eligible consumers with a monthly housing assistance payment.

Possible violations include:

• Disparate treatment discrimination, which exists when a creditor treats applicants differently on a prohibited basis—for example, when a creditor excludes or refuses HCV Homeownership Program vouchers as a source of income, or accepts the vouchers only for certain mortgage loan products or delivery channels.

• Disparate impact discrimination, which may exist if an underwriting policy regarding income has a disproportionately negative impact on a prohibited basis. An ECOA violation may occur, 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 can’t also reasonably be achieved by means that effect less disparate impact. To manage fair lending risk in this area and comply with ECOA and Regulation B, the CFPB recommends:

• Clearly articulating underwriting policies regarding income derived from public assistance programs;
• Training underwriters, mortgage loan originators, and others involved in mortgage loan origination; and
• Carefully monitoring for compliance with the institution’s underwriting policies.

According to the CFPB,“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.”

See CFPB Bulletin 2015-02: Section 8 Housing Choice Voucher Homeownership Program (May 11, 2015), at consumerfinance.gov.