Most Claims Against Navy Federal’s Racial Mortgage Approval Disparities Are Dismissed

A Virginia federal judge last week dismissed most of the civil claims in a class action lawsuit against the $178 billion Navy Federal Credit Union in Vienna, Va., that alleged it had the widest racial disparity in approval rates among the nation’s 50 largest mortgage originators.

However, U.S. District Court Judge Leonie M. Brinkema in Alexandria also ruled the lawsuit will be allowed to move forward based on a legal argument of the “disparate impact theory” involving race discrimination in violation of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA).

The lawsuit was filed earlier this year by nine Navy Federal members after a December CNN report found Black applicants to Navy Federal were more than twice as likely to be denied mortgage loans as white applicants even when more than a dozen different variables – including income, debt-to-income ratio, property value, down payment percentage and neighborhood characteristics – were the same. Navy Federal countered the CNN report did not accurately reflect the credit union’s practices because it did not account for major criteria required by any financial institution to approve a mortgage loan such as credit score, available cash deposits and relationship history with the lender.

Navy Federal filed a motion to dismiss the case in March.

“At the motion to dismiss stage, the Complaint has sufficiently pled a claim for disparate impact (theory) under the FHA and ECOA because it meets the requirements to state a claim: the statistical disparities reveal a disparate impact among non-white loan applicants and the underwriting algorithm and process is alleged to have caused the disparity,” Judge Brinkema wrote in her 23-page memorandum opinion released on May 30. “If during discovery plaintiffs are unable to link the described ‘secret’ underwriting process to the precise disparities and adverse consequences experienced by the borrowers – taking into consideration their individualized application criteria – then the Court may revisit whether the claim can survive at summary judgement.”

Judge Brinkema dismissed the “disparate treatment theory,” which was also under the FHA and ECOA laws because the complaint failed to allege plausible direct or circumstantial evidence of discriminatory intent and has also failed to allege facts showing that the plaintiffs were qualified for the mortgage products they sought.

Judge Brinkema also struck down the lawsuit as a class action lawsuit.

“Because the circumstances of each plaintiff’s loan application process are so varied, and to promote the efficient use of resources and to streamline the claims to be considered in this civil action, the Court will strike the class allegation and allow the nine plaintiffs to proceed on their federal ECOA and FHA disparate impact claims … or permit them to proceed individually,” she ruled.

Finally, Judge Brinkema also ordered the nine Navy Federal members to file an amended complaint that conforms with the reasoning of her memorandum opinion.

READ MORE: Oliver v. Navy Federal Credit Union Memorandum Opinion