Luther Burbank Savings Settles with DOJ over Alleged Loan Bias

Luther Burbank Savings has agreed to spend $2 million to settle a federal government lawsuit accusing the real estate lender of practices that resulted in too few home loans for African American and Latino borrowers from 2006 to 2010.

The Santa Rosa-based thrift, with $3.6 billion in assets, did not admit wrongdoing. It lends mainly to owners of apartments, many of them in minority neighborhoods — a business the government did not challenge.

The allegations instead related to a $400,000 minimum loan amount Luther Burbank had set for a smaller business line that issued jumbo mortgages through independent brokers to low-risk borrowers.

The Justice Department said in a statement that the effect was to limit the percentage of home loans Luther Burbank made to minorities. In Los Angeles, for example, 5.8% of the mortgages in question went to blacks and Latinos during the five-year period compared with 31.8% at other prime lenders.

The settlement, filed Wednesday in federal court in Los Angeles, is designed to encourage lending in California communities where more than 50% of the residents are members of minority groups, the Justice Department said.

The settlement is the latest resulting from an Obama administration push to bring fair-lending cases and follows far larger settlements by Wells Fargo & Co. and Bank of America Corp.

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The S&L has since done away with the $400,000 minimum and set up a separate division, Luther Burbank Mortgage, which offers traditional 30-year loans that are sold to Fannie Mae and Freddie Mac, the giant government-supported mortgage finance firms.

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