The Madison, Wisconsin-based mortgage lender agreed to pay nearly $10 million under a proposed settlement for redlining Black neighborhoods in Birmingham and failing to address known signs of discrimination, according to the consent order. Fairway, the fifth-largest mortgage lender by origination volume, operates in Birmingham under the name MortgageBanc, though it is not a bank. 

"This case is a reminder that redlining is not a relic of the past, and the Justice Department will continue to work urgently to combat lending discrimination wherever it arises and to secure relief for the communities harmed by it," Attorney General Merrick B. Garland said in a press release.

The complaint alleges that Fairway concentrated its retail loan offices in majority-white areas and spent less than 3% of its direct mail advertising in majority-Black areas. Though the company claimed to serve the entire Birmingham area of 1.1 million people, Fairway for years discouraged homeownership in majority-Black areas by generating loan applications at a rate far below its peer institutions.

The Justice Department said that Fairway took "no meaningful action," to address redlining risk and failed to train or incentivize its loan officers to serve majority-Black neighborhoods.

Between 2018 and 2022, only 3.7% of Fairway's mortgage applications were for properties in majority-Black areas, compared to 12.2% for the company's peers.

Fairway's CEO Steve Jacobson and the company did not immediately respond to requests for comment. 

Under the proposed consent order, Fairway has agreed to pay $8 million for a loan subsidy program in Birmingham's majority-Black neighborhoods that will provide lower interest rates and down payment assistance, among other forms of relief. 

The company also agreed to pay $1.9 million to the CFPB's victims relief fund and will invest at least $1 million in redlined neighborhoods in Birmingham by opening a loan production or retail office and by spending at least $500,000 on advertising and outreach plus $250,000 on financial education. The settlement still awaits approval by the Federal District Court for the Northern District of Alabama.

CFPB Director Rohit Chopra said the consent order would hold Fairway accountable for redlining Black neighborhoods.

"Fairway's unlawful redlining discouraged families from seeking loans for homes in Birmingham's Black neighborhoods," Chopra said in a press release. 

From 2015 to 2022, Fairway operated three retail loan offices and three loan production desks within real estate offices — all of which were in majority-white areas of Birmingham. The mortgage company relied on referrals from real estate agents and its loan officers' personal contacts to generate mortgage applications, of which the vast majority were located in white areas, the complaint states.

"By taking these actions, Fairway discriminated against, and unlawfully discouraged, mortgage loan applications for properties in majority-Black neighborhoods," the Justice Department said. 

Competing mortgage lenders generated applications at over three times the rates of Fairway in majority-Black neighborhoods, the Justice Department said. The disparity was even higher in areas with 80% or more Black residents, where Fairway originated loans at less than one-eighth the rate of its peers, the DOJ said.

Despite the findings, Fairway failed to adopt any written plan for marketing or growth to address the issue of redlining. 

The settlement is the third case that the Justice Department and CFPB have brought jointly, and it brings the amount of relief for the DOJ's Combating Redlining Initiative to more than $150 million, Garland said.