Navy Federal Asks Judge to Dismiss Alleged Racial Mortgage Complaint
Navy Federal argues members were denied home loans based on identifiable credit criteria.
The $178 billion Navy Federal Credit Union in Vienna, Va., has asked a federal judge to dismiss an amended complaint filed by eight African American members and one Hispanic member who are alleging they were denied mortgage loans because of their race.
The amended complaint claimed Navy Federal systematically discriminates against African Americans, Latinos, Native Americans and other racial minorities by denying mortgage applications that would have been approved for similarly situated white Americans.
“Plaintiffs continue to assert the same conclusory allegations questioning Navy Federal’s commitment to its membership, despite the fact that Navy Federal ranks third amongst leading lenders in the percentage of mortgage loans made to Black borrowers,” Navy Federal said in its motion to dismiss the amended complaint on Tuesday.
Navy Federal added in its court filing that the members were denied their mortgage loans based on identifiable credit criteria. For example, three members received denial letters in part because the credit union was unable to verify their income. Five members were denied in part because their income was insufficient for the amount of the mortgage loan they applied for, and three members had delinquent past or present credit obligations.
“The SAC (second amended complaint) does not identify these reasons, and there is no allegation that these explanations were not in fact the reasons for the denials,” Navy Federal said in its court filing.
A hearing on Navy Federal’s motion to dismiss is expected to be held in September before U.S. District Court Judge Leonie M. Brinkema in Alexandria, Va.
The Navy Federal members originally filed a class action lawsuit earlier this year after a December CNN report that found Black applicants at 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. The credit union 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.
Most of the claims in the class action lawsuit were dismissed in May by Judge Brinkema because it failed to allege plausible direct or circumstantial evidence of discriminatory intent and failed to allege facts showing that the plaintiffs were qualified for the mortgage products they sought.
Nevertheless, the U.S. Court of Appeals for the Fourth Circuit in Richmond agreed last week to hear an appeal on a portion of Judge Brinkema’s May ruling that struck down the members’ lawsuit as a class action lawsuit because the circumstances of each member’s loan application process are so varied.
However, in that May ruling the judge also said Navy Federal members were allowed to file an amended complaint based on a legal argument of the “disparate impact theory” or claim involving race discrimination in violation of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act, (ECOA).
In their amended complaint, members alleged Navy Federal’s own data showed that in 2022 it denied Black borrowers’ home loan applications at a rate of 52% and Latino borrowers’ applications at a rate of 44%, while denying 23% of White applicants, the amended complaint alleged.
“In fact, Navy Federal approved a higher percentage of applications from White borrowers making less than $62,000 a year than it did from Black borrowers making $140,000 or more per year,” according to the amended complaint.
Navy Federal, however, argued in its motion to dismiss that Judge Brinkema said that in order to argue a disparate impact claim involving alleged race discrimination, each member needed to provide specific information about their mortgage applications – including income, debt, home value and the reasons provided by the credit union for their loan denials.
“Rather than heeding the Court’s clear directions, the Second Amended Consolidated Complaint (SAC) relies once again on the same conclusory allegations,” Navy Federal’s motion to dismiss, in part, stated.