Real-Estate

Cadence Bancorp paying $8.5 million to settle redlining allegations

Cadence Bancorp in Houston has agreed to pay a $3 million penalty and provide more than $4 million in loan subsidies to new borrowers to settle allegations of discrimination within its mortgage lending business.

The agreement announced Monday by the Justice Department and the Office of the Comptroller of the Currency closes an investigation into Cadence’s lending practices at a time when regulators are evaluating the company’s planned merger with the $24 billion-asset BancorpSouth in Tupelo, Mississippi.

The Justice Department under President Trump reportedly dropped its investigation into Cadence Bancorp but resumed it after President Biden took office.

Bloomberg

The $18.7 billion-asset Cadence disclosed in early August that the Justice Department had warned of an upcoming penalty regarding potential fair-housing lending violations in the Houston market. Prosecutors claim that Cadence was avoiding providing home loans in the area’s communities of color while concentrating branches and loan officers in majority-white neighborhoods between 2013 and 2017, an illegal practice known as redlining.

“There is no place for discrimination in the federal banking system,” acting Comptroller of the Currency Michael Hsu said in a press release announcing the settlement.

Cadence CEO and Chairman Paul Murphy Jr. said in a news release Monday that while he believes Cadence had complied with fair-housing laws at all times, he “recognized that the mortgage lending program was not where we wanted it to be” following its acquisition of Houston-based Encore Bank in 2012.

“We subsequently developed and successfully implemented a coordinated set of efforts to sustainably increase our lending in majority-minority census tracts and minority neighborhoods in Houston,” Murphy said.

More than half of Cadence’s mortgage business has been directed toward minority neighborhoods over the past several years, Murphy said.

It’s unclear if banking regulators will factor in the past issues when deciding on whether to approve the merger with BancorpSouth. But Murphy said in the news release that the deal is still expected to close in the fourth quarter, pending regulatory approval.

The Trump-era OCC reportedly investigated Cadence’s mortgage lending practices and referred the matter to the Justice Department in 2018, but the case was allegedly dropped at the time, according to a report last year from ProPublica and the Capitol Forum.

The settlement with Cadence announced Monday is an indication that the Biden administration intends to be tough on companies that commit fair-lending violations.

The OCC levied the $3 million penalty, and the Justice Department secured $5.5 million in other investments from Cadence.

They include $4.17 million in loan subsidy funds to help Black and Hispanic borrowers afford home loans in the Houston area. Cadence will spend $750,000 to help community partners provide services that help borrowers qualify for mortgages. And $625,000 will go toward advertising, outreach and consumer education. A community leader will be hired by the bank to direct the spending.

Cadence is also required to open a new branch in a minority neighborhood and dedicate four loan officers to providing credit in areas the bank had allegedly ignored in the past.

“This case highlights the need for vigilance in addressing practices which treat certain communities unfairly, and has led to an agreement with Cadence Bank intended to improve the fairness of its business practices and to make remedial financial investments in the negatively impacted communities,” acting U.S. Attorney Kurt Erskine said.


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