Mortgage lenders and third party originators must comply with federal fair lending laws that make it illegal to discriminate against creditworthy applicants on a prohibited basis. Mortgage industry participants may be held liable under the disparate impact theory. The disparate impact theory holds that policies which seem neutral and without discriminatory intent, may, in fact, be severely detrimental to a protected class or individual. Disparate treatment occurs when creditors treat applicants overtly different based on a prohibited basis. The Home Mortgage Disclosure Act, implemented under Regulation C, holds lenders and TPOs accountable for compliance with fair lending laws through the reporting of loan data, used to identify possible discriminatory lending patterns and which also helps determine if lenders are serving the housing needs of the communities.
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