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Home prices declined minimally between December and January, which some see as a sign that some cooling is on the horizon. But they still increased dramatically compared to one year ago.Both the S&P CoreLogic Case-Shiller National Home Price Index, as well as data from the Federal Housing Finance Agency found prices declined 0.1% on a month-to-month basis.This is the first monthly decrease in the FHFA index since August 2022, but year-over-year price growth remained near the historical average, said Anju Vajja, deputy director of the Division of Research and Statistics, in a press release.Compared with January 2023, the FHFA index was 6.3%, with all regions of the country reporting price gains, ranging from 3.8% in the West South Central states, to 8.7% in the East North Central. Other regions reporting large price gains were the Middle Atlantic at 8.6%; New England, up 8.4%; and West North Central, 7.1%.West North Central was the only region with a big month-to-month increase, at 1.5%. The largest decrease was in the South Atlantic region, down 0.6%.Meanwhile, the S&P Case-Shiller data showed prices nationwide increasing 6% year-over-year in January, up from a 5.6% gain in December.On a month-to-month basis, this index has declined for three consecutive periods.Its 10-city composite increased 7.4% annually compared with 7.4% in December, while the 20-city index increased 6.6%."We've commented on how consistent each market performed during 2023 and that continues to be the case," said Brian Luke, head of Commodities, Real & Digital Assets at S&P Dow Jones Indices, in a press release Tuesday. "Homeowners most likely saw healthy gains in the last year, no matter what city you were in, or if it was in an expensive or inexpensive neighborhood."But looking at the monthly changes, home prices were affected by increased borrowing costs as mortgage rates rose, Luke continued.Only three markets increased month-to-month: San Diego rose 1.8%; Washington, up 0.5%; and Los Angeles at 0.1%.Recent reports of increased home sales listings are welcome and a sign that the market is normalizing, said Selma Hepp, chief economist at CoreLogic."While elevated mortgage rates continued to freeze housing market activity over the winter, an unthawing is in sight, with improvements in for-sale inventory offering more opportunities for potential buyers across the country," Hepp said in a statement. "With spring's arrival, home prices are likely to show a seasonal uptick, although the annual acceleration in gains will slow compared with the strong 2023 spring."Prices should rise another 3% to 4% this year, Hepp said in a follow up statement.A decline in the pace of home price gains would be welcome, as potential buyers are caught in an affordability crunch.The typical American family earns nearly $30,000 less ($29,448) than it needs to afford a median priced home during February, a Redfin report issued March 26 found.This is actually an improvement compared with October, when the deficit was $40,810.A Redfin analysis of February data found that a buyer needed to earn an annual income of $113,520 to afford the median-priced U.S. home of $412,778. That's 35% more than the $84,072 median household income."We're slowly climbing our way out of an affordability hole, but we have a long way to go," Elijah de la Campa, senior economist at Redfin, in a press release. "Rates have come down from their peak, and are expected to fall again by the end of the year, which should make home buying a little more affordable and incentivize buyers to come off the sidelines."The amount of income needed to buy a home was up 12% from February 2023, 39% over the same month in 2022 and 74% three years ago.The lack of affordability made it cheaper to rent than to buy a home in the nation's 50 largest metro areas, Realtor.com's Rental Report said.The mortgage payment on a starter home located in the largest metros cost on average $1,027, or 60.1%, per month more than rent. Rent price growth is slowing, CoreLogic reported recently."The financial scales have tipped monthly costs in favor of renting over buying, but it does not bring the benefit of housing wealth gains over time that owning does and movers should consider their long-term housing plans and personal situation as they make this decision," said Danielle Hale, chief economist at Realtor.com, in a press release.

A Maryland-based couple agreed to settle a suit against Loandepot, which claimed that an alleged discriminatory, undervalued, home appraisal led to the lender's rejection of their refinance application.As part of the settlement, the plaintiffs, Nathan Connolly and the estate of Shani Mott, who passed away in mid-March, will receive an undisclosed sum from the lender to resolve damages and attorneys' fees. Though Loandepot denies allegations of wrongdoing, the shop also vowed to beef up its appraisal policies and practices to "ensur[e] fair lending protections for customers," the settlement published March 22 said. The complaint and the settlement were first reported by the New York Times.The Foothill Ranch, California-based lender has promised to highlight to applicants that they have the right to request a reconsideration of value (ROV), flag appraisals that indicate potential bias, require annual training for its customer service staff and make it necessary for appraiser partners to receive training in fair housing laws and regulations. Most items of the settlement will be in effect for three years.A spokesperson for Loandepot highlighted that the company "strongly opposes bias in the home finance process.""While we continue to deny the specific allegations in this lawsuit and have made no admission of fault, we're proud of the commitments announced today, which will formalize many of our existing practices and provide additional resources to help our customers in the appraisal and review process," he said.The complaint, first lodged by the couple in 2022, alleged that appraiser Shane Lanham, the sole owner of Parkville, Maryland-based 20/20 Valuations, low-balled the appraisal of their home in 2021. At the time, Lanham said the value of their property was $472,000, far below a Loandepot lending officer's estimate of $550,000. The couple contended the appraisal was based on questionable calculations stemming from Lanham's alleged "racist beliefs."Following the appraisal process, Loandepot rejected the couple's refi application based on the low valuation, and lending officer Christian Jorgensen allegedly answered the couple's concerns by giving them an incorrect deadline to appeal and stopped responding to their calls for months. Connolly and Mott later received a higher home valuation and secured a refi loan with a different lender, after "whitewashing" their home for another appraiser, according to the suit filed in the U.S. District Court for the District of Maryland. The new appraisal came in at $750,000, almost 60% higher than Lanham's appraisal. The couple, both professors at John Hopkins University, lived in Homeland, a small, historic and predominantly white neighborhood in north Baltimore. In March 2023, the Justice Department and the Consumer Financial Protection Bureau jointly filed a statement of interest in the case, highlighting a "broader effort to ensure fair and accurate appraisals in our residential mortgage markets."The settlement with Loandepot, does not resolve or release any claims in this civil action by or against Shane Lanham or 20/20 Valuations, legal documents said.

A former top performing branch for Hometown Lenders is inching closer to settling its $1 million lawsuit lodged against the defunct company last year, documents show.The suit, originally filed in August 2023 by Anthony Perri Sr. and Anthony Perri Jr., a father and son duo who ran a Moketa, Illinois branch, accuses Hometown of failing to reimburse "hundreds of thousands of dollars of approved expenses," and their office building. Their complaint joined a chorus of other voices that alleged Hometown was negligent in running its business.The lender allegedly stopped reimbursing the two plaintiffs for branch expenses in 2022, and because of this, more than $500,000 have been fronted by the father and son on Hometown's behalf to keep their branch running, states the lawsuit filed in the U.S. District Court for the Northern District of Illinois. The duo left the company in July 2023.An amended joint status report filed in late February with an Illinois federal court gives clues regarding how the settlement between the Perris and Hometown is being hashed out.For one, the battered Alabama-based lender has agreed to transfer an office building back to the plaintiffs, the filing shows. Last year, the father and son duo claimed Hometown and Billy Taylor, Hometown's CEO, wrongfully retained the title to their office building. The purchase of the building was funded solely by the plaintiffs, they claim.Hometown also initiated the transfer of deferred compensation to the plaintiffs. This will resolve Tony Sr.'s ask for the lender to pay him more than $738,000 in deferred compensation. Resolution of the above mentioned claims "will impact the pending motion to dismiss and potentially obviate the need for any briefing," an attorney representing the Perris wrote in the filing. In January, Hometown tried to unsuccessfully dismiss this case purporting it failed "to state a claim upon which relief may be granted."If the two parties cannot come to an agreement, the branch managers and Hometown will have to file yet another joint status report April 1, after which a status hearing will be held April 5, documents show. Billy Taylor, Hometown's CEO, and the Perris did not immediately respond to a request for comment.Another suit lodged against Hometown Lenders by a former branch manager seeking $50,000 for the company's failure to reimburse expenses and commissions may also be heading for settlement. Jason Wiggins, who filed a suit in Lackawanna County, Pennsylvania, said Hometown recently offered to pay 30 percent of the monies owed to settle. Even if the shop moves to resolve these two suits, there are other pending items that complicate the company's future going forward.Flagstar Bank filed a $21 million suit against Hometown in November. The suit accuses the shop and Billy Taylor for "wrongful conduct" of defaulting on a warehouse line. Jury trial is set to begin in Michigan on Feb. 2, 2025. Additionally, a handful of state housing regulators moved to revoke Hometown Lenders' license at the end of last year, preventing the lender from doing business. Overwhelmingly, the notices filed by the regulators accuse the lender of not paying mortgage insurance premiums on what amounts to hundreds of government-insured loans. In total, there are at least 300 Federal Housing Administration loans originated by Hometown with unpaid MIP, per filings by regulators in the states of Montana, Missouri, Maine and Alabama.The Internal Revenue Service has also issued a notice of a federal tax lien in the amount of almost $1 million late last year, filings show.

Prices in the mortgage servicing rights market are still strong historically, but as recent negative valuation adjustments in public earnings show, there've been some shifts.Relative differences in interest rates have led to prepayment variability in high coupons, and while home equity overall remains robust, some areas have high underwater loan rates. Also, foreclosure volumes are higher in certain markets and some delinquencies are drifting higher.What follows are some of the datasets that illustrate trends in these numbers. They are important for servicing buyers and lenders who are looking to sell MSRs, because they drive trends that could affect the value of their assets and the risk management profiles.There's been a little more variability in servicing prices as the market has come down slightly from its peak, and the need sell them, for many, has grown as the crunch in origination volume has persisted.Seasoned MSRs can still sell for historically high 5 multiples as they did during the peak of rate-hike era, but others have fallen a little into the 4-4.5 range or around 3 for Ginnie Mae portfolios, according to David Lykken, an industry veteran and executive leadership coach."Because of the back-to-back quarterly losses that are being suffered and the fact that volume, while improved, is still relatively low, people that did hold onto their servicing are finding that they need, for liquidity reasons, to sell," Lykken said.

A field of corn growing under a cloudy sky. Sayee Srinivasan, chief economist for the American Bankers Association, warned that "the agricultural sector will continue to face challenges due to monetary policy actions targeting persistent inflation in the U.S. as well as reduced federal support." Bloomberg Creative Photos/Bloomberg Creative Higher production costs and soft commodity prices intersected with a return to pre-pandemic levels of direct government payments and a surge in interest rates, cutting into farmers' profitability in 2023. But this boosted agricultural loan demand to help cover operating expenses, according to the American Bankers Association's annual farm bank performance report.Ag lending by U.S. farm banks — those institutions with specialties in the industry — grew 6.7% from the prior year to $110 billion, the ABA said."Farm banks continued to enjoy solid performance in 2023, with robust loan growth and historically low delinquency rates," said ABA's Chief Economist Sayee Srinivasan.In 2023, the ABA said 98.1% of farm banks were profitable, with 53.5% reporting an increase in earnings. Coming off of all-time low delinquency rates the prior year, the median noncurrent rate at farm banks inched up 3 basis points to 0.23% in 2023. This included loans 90 days or more past due and loans in nonaccrual status. By comparison, the noncurrent loan ratio for the broader banking sector was 0.27%, the ABA said.The association's report — an analysis of data from the Federal Deposit Insurance Corp. and U.S. Department of Agriculture — examines the performance of the nation's 1,442 banks that specialize in agricultural lending. ABA defines farm banks as those with a ratio of domestic farm loans to total domestic loans greater than or equal to the industry average.Many of these banks are community lenders that cater to small farm operations. The report found that, at the close of 2023, farm banks held 639,694 small farm loans worth more than $44.6 billion, including $9.2 billion in micro farm loans at the end of 2023. A small farm loan is a loan with an original value of $500,000 or less and a micro farm loan of $100,000 or less, the ABA said.A turbulent year may lie ahead, however, the USDA cautioned in its own annual outlook last month. It projected that U.S. farm incomes could fall 26% this year to $116.1 billion after declining 16% in 2023 because of a slump in prices for many crops. This would follow a record year for income in 2022, when farmers collectively earned $185.5 billion amid a global surge in demand during the onset of Russia's invasion of Ukraine and resulting supply disruptions in Europe.But U.S. supplies grew too rapidly in 2022 and into last year. With parts of the global economy slumping, demand has since declined and crop prices have fallen. Pandemic-era government assistance programs for farmers also wound down last year.What's more, while inflation has dropped from its 2022 peak, it remains elevated and, as such, the Federal Reserve is keeping interest rates near the highest level of this century to combat high prices. This makes borrowing much more expensive and, in some cases, harder for farmers to service their debts. This may increase the threat of credit losses for banks this year.The Purdue University/CME Group Ag Economy Barometer, a measure of farmer sentiment, produced a reading in February that was 11% below the same month a year earlier."People expect 2024 to be a tougher year," said James Mintert, director of Purdue's Center for Commercial Agriculture.The ABA concurred."Moving forward in 2024, the agricultural sector will continue to face challenges due to monetary policy actions targeting persistent inflation in the U.S. as well as reduced federal support," Srinivasan said.He added that farm banks have built strong capital reserves and remain liquid and prepared to manage potential economic headwinds. Equity capital at farm banks increased 14% to $47.2 billion in 2023, and Tier 1 capital increased by 6.8% to $53.7 billion, according to the ABA.The banking industry overall — not just farm banks — lends into the ag industry. At the end of 2023, U.S. banks held nearly $199 billion in farm and ranch loans, the ABA said. According to its report, banks held more than 1.1 million small farm loans worth $70 billion at the end of 2023, including more than 687,000 microloans worth about $15 billion.

Freddie Mac's latest economic forecast calls for mortgage rates to remain at 6.5% for the first half of the year as the Federal Reserve reacts to the latest news regarding inflation.In the near-term, Freddie Mac economists expect a growing economy to keep inflation above the Fed's 2% target."Therefore, we expect the Federal Reserve to not cut rates until the summer at the earliest and potential upside surprises on inflation could push rate cuts out even further," a blog posting from Freddie Mac's economists, led by Sam Khater, said. "As a result, treasury yields will remain elevated in the near term, keeping mortgage rates elevated."Last month, Freddie Mac had predicted rates to remain at 6.5% in the first quarter and trend down to 6% by year-end.The most recent Primary Mortgage Market Survey put the 30-year FRM at 6.87%, up 13 basis points from the prior week.Meanwhile, the economists at the Mortgage Bankers Association in its March forecast now calls for 2024 volume to be a tick higher than it expected in February.The trade group's latest outlook is for $2.01 trillion of volume this year, compared with $2 trillion in the February forecast.The MBA did not change its 2025 or 2026 projections of $2.34 trillion and $2.44 trillion respectively.Previously, Fannie Mae dropped its 2024 forecast by $15 billion in March, and for 2025, reduced it by $16 billion. That change was largely driven by Fannie Mae revising its rate forecast to now call for the 30-year fixed rate loan to remain above 6% through the end of 2025.On the other hand, the MBA remains of the view that the 30-year FRM will sink back below 6% next year, although it ends this year at 6.1%; portions of its rate outlook are unchanged from February.Its March forecast has rates in the first quarter of 2025 at 5.9%, also unchanged from their prediction from the prior month. But the fourth quarter 2025 average of 5.6% is slightly higher than what it called for in February.The Freddie Mac March blog posting expects a modest recovery for the housing market in the second part of this year as rates drift down following an expected Federal Reserve rate cut that investors are now expecting for this summer."The recovery, however, will be limited as the rate lock effect will prevent homes from coming on the market," the Freddie Mac blog said. "We expect upward pressure on home prices to remain as more first-time home buyers continue to flood the housing market that is plagued by a lack of supply."Freddie Mac no longer supplies detailed volume estimates with its economic commentary. However, the company said that using its "baseline scenario, we expect the dollar volume of purchase origination to improve modestly in 2024 and 2025."Despite firm price growth, our view on originations is subdued since a modest recovery in home sales coupled with a rising share of cash purchases will restrict purchase origination volumes from growing significantly," the blog post continued.Refinance volume will be limited because many homeowners lack the incentive to act given where rates are now versus when they last took out a mortgage."Together, we expect total mortgage origination to remain low through most of 2024 but start to increase at the end of the year and see modest increases in 2025," Freddie Mac said. "While our outlook remains optimistic, caution is warranted considering the fight against stubborn inflation may drag on longer."If credit quality were to deteriorate as some expect, that could also impact the forecast, but Freddie Mac added that its baseline forecast doesn't anticipate this sort of event taking place.

During the Mortgage Bankers Association's advocacy conference last week, Bob Broeksmit, the trade group's president, floated the idea that the recent National Association of Realtors settlement, which will change the commission structure for real estate agents, may result in more dual licensed agents. What came after was a loud groan from the crowd. "There will be market reactions to the settlement and it will create openings for other business models where we want the buyer represented, but the seller may not want to pay 3% for a buyer's agent," he said. "One of those models could be that you, as lenders, license your loan officers as real estate agents and offer the buying agent service for less than 3% fixed fee."He admitted it would not appeal to all. "Some of you will say 'I want nothing to do with that.' Others of you will say that is a great retention opportunity for my loan officers and the market will figure all this out."During the panel, the room was filled with loan officers and production employees whose audible groans seemed to indicate that they did not like the idea of wearing two hats in a transaction.But Broeksmit's words have been echoed by mortgage executives and advisors who have pointed out that dual employment will create more opportunities for loan officers and real estate agents going forward.Paul Hindman, industry consultant, said he often suggests loan officers pursue a dual certification. "You don't want to use [the dual certification] against the relationships that you already have, but for the intellectual property that comes with being an advisor," Hindman said. "I think that it's only an enhancement to both your intellectual property and your transactional ability to get things done."Some loan officers themselves, however, are not as enthusiastic about dipping their toes into the real estate industry. One of the main concerns, of course, is burning bridges with their real estate referral partners."Even if I wanted to get my real estate license, which I don't think I do, ruining relationships with my partners would be a concern of mine," said Sean Eagan, sales manager at Loandepot."A lot of originators get leads from real estate agents, and if a Realtor trusts you, they'll likely keep giving you deals," said Sergey Pokolodin, owner of brokerage Viva Mortgage. "A lot of loan officers who have been in the business for a while have a network of like 100 real estate agents that they communicate with and get business and it works out."Another reason for LO cynicism is they have enough work on their plate as is and don't have time to add another role to their resume, some have said. "I might consider [getting a real estate license] to make an extra $2,000 just to write the contract," said Alex Naumovych, loan officer at Capital Bank Home Loans. "But not too much because you can't do two jobs perfectly. You can be a professional only in one thing."Some point out that the two jobs are incredibly different and figuring out how to do both efficiently might be unrealistic."You could have some more dual agents following the NAR settlement, but I can't predict a wave simply because the skill set it takes to be a Realtor versus a lender is completely different," said Jon Overfelt, director of sales at American Security Mortgage Corp. "It's hard to do both." Fannie Mae, Freddie Mac and most recently the Federal Housing Administration allow dual licensing, though it has been a thorny issue in the past. Concerns have been raised of companies accidentally running afoul of Real Estate Settlement Procedures Act section 8, which prohibits kickback schemes.Matthew VanFossen, CEO of Absolute Home Mortgage, thinks more dual agents will come to the forefront, "which is a natural result of the matter." Specifically, he predicts it will be real estate agents entering the mortgage space. "There will be a lot of extra commission that [real estate agents] are missing and maybe they'll want to move forward with their career and master the mortgage process," said VanFossen. "They might not be able to handle the full transaction, but what they could do is get a license and talk to the loan officers that they're already doing business with and form a lending team. I'll do a piece of the transaction and you do a piece of the transaction."VanFossen guesses the groans that reverberated during the MBA conference were in reaction to compliance worries. Mortgage companies will have to be more stringent about making sure there are no RESPA violations and that business is ethically conducted for dual agents, he said."I've personally been advocating for the industry to be aware that it would be a really bad idea to have listing agents represent the buyer's mortgage, that's not a good idea because then you can see the max affordability, the max disposable income, the max excess assets of that buyer and know how much more that you can push,"added VanFossen.NAR's proposed rule changes, part of its $418 million settlement, could eliminate buyer agents if homebuyers forgo representation to avoid those fees. That factor could make listing agents a stronger referral source for lenders, once updates are slated to go into effect in July. Some experts believe this will push many real estate agents out of the business.

Consumers expecting big savings from a National Association of Realtors' class-action settlement over agent commissions may instead be in for a letdown.The agreement drew cheers from President Joe Biden, who said it "could save homebuyers and home sellers as much as $10,000" in one example, and former Treasury Secretary Larry Summers, who said that breaking the "Realtor cartel" could save U.S. households $100 billion over time. But the true benefits remain unclear, especially for first-time buyers who need help the most.It comes at a precarious time for the housing market, with higher mortgage rates pushing sales last year to the lowest level in nearly three decades. It's especially tough for first-time buyers looking to jump into one of the most unaffordable markets in history. In theory, the settlement could translate into lower home prices by pushing commissions down. But experts say that's not a given, especially in the short run."No seller I've encountered will lower the price just because their transaction cost went down," said Steve Murray, senior adviser to data provider and consultant Real Trends. "That will not happen."The NAR said in a statement responding to Biden's remarks that commissions were already negotiable before the settlement agreement and will continue to be. "Real estate agent commissions are driven by the market and are not the cause of the affordability crisis," the NAR said.How the changes ripple out and impact the market is a subject of heated debate, in part because nobody really knows.The decades-old system for how U.S. agents are compensated has long been controversial. Sellers typically pay a commission to their agent of 5% or 6%. The listing agent then splits the money with the buyer's representative. Critics argue that the structure inflates costs and creates bad incentives.In October, a Missouri jury handed down a $1.8 billion verdict that found the NAR and others liable of colluding to keep prices high. To settle that case and others, the NAR agreed earlier this month to pay sellers roughly $418 million and said it would change some of its rules. In the most important shift, the trade group would bar sellers from including compensation details on the multiple-listing service, which has long been the most important tool for marketing homes.That change, to take effect this summer subject to a court's approval, could encourage sellers to negotiate lower commissions. But the industry is rife with speculation that agents will find ways to discuss commission splits through other methods, for example, on brokerage websites."I expect commissions to get bid down to 4% to 5% over time with variation by home price and geography," Moody's Analytics Chief Economist Mark Zandi said. "It's a significant change but will likely be gradual. I expect most of the gain to be captured by the seller, so the impact on home prices will be small."Possible OutcomesThe settlement was a hot topic at the American Real Estate Society's annual gathering of academics in Orlando this week. Ken H. Johnson, a real estate professor at Florida Atlantic University and a former broker, was in attendance, gaming out the possible outcomes with colleagues.Even the question of who is getting the benefit from lower commissions — buyer or seller — doesn't have a simple answer, he said. In theory, the seller should pass on some savings to the buyer, but maybe not as much in a seller's market.And it may encourage more first-time homebuyers, who sometimes lack the cash to pay brokers upfront, to go it alone, according to Johnson. More buyers are likely to go directly to listing agents to avoid having to shell out for commission costs. But that might result in more agents with potential conflicts of interest, representing buyers and also the sellers who pay them."Now some buyers are going to have to pay out of pocket, or maybe buy less expensive homes," Johnson said.Another huge question looms over the industry. The Department of Justice has taken aim at commission sharing, arguing for a full decoupling of compensation for sellers' and buyers' representatives. It remains to be seen if the NAR settlement satisfies regulators.New RulesAgents are already adapting to the new rules under the proposed settlement. In New York, broker Keith Burkhardt is working on a new flat-rate service to provide help valuing properties, negotiating deals, and navigating the city's co-op and condo boards. He figures pricing will be critical and estimates charging buyers between $5,000 and $7,500. Meanwhile, buyers' agents will also have to work harder to explain how they'll add value to any deal, according to Iain Phillips, a real estate agent in California.The settlement is a start, said Larry Summers, a paid contributor to Bloomberg Television, on Wall Street Week with David Westin. But most observers don't expect huge changes to happen overnight. "Right now, everyone is turning this ruling into what they want it to be," said Mike DelPrete, who teaches courses on real estate technology at the University of Colorado Boulder. "Some people are saying not much is going to change. Others want the story to be that it's a seismic shift for the industry. The whole thing is being driven by fear and uncertainty."

The Justice Department has secured $122 million from a dozen banks and mortgage companies in redlining cases since Attorney General Merrick Garland announced the agency's Combat Redlining Initiative in 2021.Haiyun Jiang/Bloomberg When the Justice Department alleged last year that American Bank of Oklahoma had engaged in redlining, emails containing racial slurs became a focal point of the allegations. One bank executive forwarded an email that proclaimed "Proud to be White!" and used the "N word" in its entirety and other racial slurs.In another separate redlining case against Trident Mortgage, the Justice Department described how loan officers, assistants and other employees received and distributed emails containing racial slurs and content that used racial tropes and terms. The communications sent on work emails included a photo showing a senior loan officer posing with colleagues in front of a Confederate flag, and pejorative content related to real estate and appraisals and content targeting people living in majority-minority neighborhoods. Trident, which is owned by Warren Buffet's Berkshire Hathaway, settled the DOJ's complaint in 2022 for $24 million.Since the Justice Department launched its Combatting Redlining Initiative in late 2021, racist emails have received more attention from both the DOJ and the Consumer Financial Protection Bureau in an effort to show racial bias has permeated a company's culture.Discriminatory emails on their own have not been used to allege redlining. Rather they are combined with key lending statistics that show how lenders compare with their peers in making loans in minority communities and whether a lender has avoided locating branches or hiring loan officers in minority communities. All of that, taken together, is then used to show intentional discrimination.In some cases the emails help regulators differentiate among lenders that are not providing equal access to credit.Banks rarely push back against redlining claims and typically choose to settle such cases, often citing the cost and distraction of protracted litigation as the reasons for reaching an agreement with authorities. But some legal experts say that financial institutions have little control if a racist email is sent to an employee from outside a company. A distinction is being made when discriminatory emails are sent by a company's employees, or are forwarded to others even without comment."Holding a company accountable for an employee's views or statements, even when those statements are inconsistent with the company's values and culture, places a burden on that company to censor its employees to avoid the risk of being branded as a discriminatory lender," said Andrea Mitchell, managing partner at Mitchell Sandler, who represented American Bank of Oklahoma."There are limits on an employer's ability to prevent staff from receiving racially insensitive emails or sharing personal views to exercise their right to freedom of expression," she added.Still, legal experts are quick to point out that discrimination is against the law. Employees have no First Amendment rights to assert when using a company's communication system."If there are racist jokes or an employee saying they're proud to be white, they're not going to have much of a case on free speech grounds because no one is punishing the employee for saying it. They're just using it as evidence to bolster claims of discriminatory intent," said David E. Bernstein, a law professor at George Mason University School of Law.Lisa Rice, president and CEO of the National Fair Housing Alliance, recalled working at the Toledo Fair Housing Center nearly two decades ago and routinely sending requests for emails, text messages and audio and video recordings that included a list of specific racial slurs."We've always been able to use public statements, verbal or written, as evidence in fair housing and fair lending cases," said Rice. "You can request for emails to be turned over and those emails can be used as evidence and as evidence of discrimination. And they might even be used as evidence of discriminatory intent."She added that regulators "may not have gone full throttle" in using emails in the past to bolster claims of intentional discrimination.To be clear, racist emails are found in a minority of redlining cases currently being brought by the DOJ.Though searching hundreds of thousands of emails or texts is a ponderous task, sophisticated tools, including those that utilize artificial intelligence, can make it much easier to root out racist terms. In some cases there may be just a handful of racist emails out of hundreds of thousands."This is old-school redlining using new techniques," said Ken Thomas, president of Community Development Fund Advisors and an expert on the Community Reinvestment Act, which requires that banks lend to low- and moderate-income communities. Among the LMI population, about 60% are minorities, he said. If there are racist jokes or an employee saying they're proud to be white, they're not going to have much of a case on free speech grounds because no one is punishing the employee for saying it. They're just using it as evidence to bolster claims of discriminatory intent. David E. Bernstein, professor at George Mason University School of Law Thomas said regulators are searching for the digital-age equivalent of a smoking gun."They are checking emails, Instagram and text messages, looking across the board at all communications, period," said Thomas. "It's more than a smoking gun. It's a gun with fingerprints and blood stains on it."Bernstein agreed, adding that the emails typically are used as supplementary evidence to get a bank or lender to agree to a settlement rather than have a case go to trial."Some of the emails may actually signal a racially charged environment where you wouldn't really trust the people not to be discriminatory and some may just be from a few adolescent-types sending silly or stupid jokes that they really shouldn't be sending, but either way it's not gonna look good to a jury or the public," he said. "If it ever got to a jury, the government says, 'Look, here are these five emails that show the racist environment people are working in.' That's a very effective tactic."Since Attorney General Merrick Garland announced the Combat Redlining Initiative in 2021, the department has secured over $122 million from 12 banks and mortgage lenders to resolve redlining allegations. The Justice Department is working with its civil rights division and U.S. attorneys' offices in coordination with the Office of the Comptroller of the Currency and the CFPB. Garland has said the DOJ has 25 redlining cases in its pipeline.Garland has spoken about how lenders are breaking the law by redlining and he has put a priority on cracking down on lenders to redress past wrongs. He also has highlighted how the gap in homeownership rates is wider today than in the 1960s. The homeownership rate for whites currently is 74% compared with 45% for Blacks, a 29-point gap, according to the U.S. Census Bureau. In 1960, the homeownership rate was 65% for whites and 38% for Blacks, a 27-point gap.The gap in homeownership is wider now than before the passage of the Fair Housing Act of 1968, which bans discrimination in home lending. That's the law that the DOJ typically uses to bring discrimination cases against lenders. Additionally, the CFPB has jurisdiction over the Equal Credit Opportunity Act, which prohibits discrimination in any aspect of a credit transaction."Redlining remains a persistent form of discrimination that harms minority communities," Garland said at a news conference in 2021, when the DOJ first announced its redlining initiative.He also has stated that "redlining is a practice from a bygone era, runs contrary to the principles of equity and justice, and has no place in our economy today."Rice said that the increase in redlining cases suggests that lenders need more training in compliance management and fair lending."Every single year the federal regulatory agencies conduct fair lending training and HUD provides all kinds of training on best practices in fair housing to learn about what are the best practices and what you should and shouldn't do," she said.Still, some experts have voiced concerns that incendiary emails have become a centerpiece of some fair lending investigations."Federal regulators have effectively investigated and pursued redlining claims for decades without the need for combing through emails and text messages that are entirely unrelated to lending and branching," said Mitchell, the attorney for American Bank of Oklahoma.She also suggests banks push back against claims that are false and inflammatory or that harm a bank's reputation.In the case of American Bank of Oklahoma, the Justice Department made a reference in a complaint filed with the courts to the 1921 Tulsa Race Massacre in which white rioters killed as many as 300 people, according to some accounts. The tragedy destroyed the city's Black business district called the Greenwood District.The $313 million-asset bank in Collinsville, Oklahoma, vehemently objected to any link between the current redlining allegations against it and the massacre given that the bank was founded in 1998 — nearly 80 years after the massacre occurred. A magistrate judge sided with the bank, and struck the two paragraphs from the complaint that mentioned the massacre. The rest of the order remained intact.There also is a concern that the use of racist emails has the e ect of branding a company as racist even as settlement agreements require that lenders build relationships and extend credit in minority communities.In the case of American Bank of Oklahoma, its settlement requires it to lend $1 million in Black and Hispanic communities in Tulsa."There's obviously all sorts of unintended consequences," said Bernstein, the law professor at George Mason University."It's an interesting paradox. We're going to announce you're racist and said now go lend to people who we just told shouldn't trust you. They're making it much harder for these companies to lend and get people to borrow from them, or to recruit members of minority groups on their staff," he added.