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.

“It is critical that lenders have policies in place to ensure that they don’t discriminate in their lending practices,” said Thomas E. Perez, assistant attorney general for the civil rights division.

Luther Burbank said in a statement that it was settling to avoid heavy legal costs. Its chief executive, John Biggs, said: “We are proud of our record on nondiscriminatory lending, and we will do everything possible to make a positive difference in the communities within our marketplace.”

The statement said Luther Burbank set the $400,000 minimum amount because it had specialized in non-traditional home loans -- the category that includes pay-option, stated-income and interest-only mortgages -- that were only appropriate for borrowers with high incomes and assets.

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.

It had kept the jumbo loans to high net worth borrowers in its own portfolio.

Luther Burbank’s eight branches include offices in Beverly Hills, Burbank, Encino and Pasadena.

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