Hudson City Savings Bank Agrees To $32.75M Mortgage Discrimination Settlement

The Record ( — Thursday, September 24, 2015

staff writer | The Record

Paramus-based Hudson City Savings Bank has agreed to a proposed settlement of more than $30 million to resolve lending discrimination allegations, federal authorities said Thursday, which may clear the way for its long-delayed merger with M&T Bank Corp.

The settlement, which still needs court approval, would put to rest civil charges that Hudson City, the largest New Jersey-based thrift, located branches, chose mortgage brokers and marketed loans that discouraged borrowers in predominantly minority communities, according to the Consumer Financial Protection Bureau and the U.S. Department of Justice.

The agreement is seen by some as a signal that the pending merger of Hudson City with Buffalo, N.Y.-based M&T Bank, in limbo for three years, may finally be consummated. The accord with the government comes a week before a Federal Reserve deadline for approving the merger.

"M&T did all the work they needed to do on their side," said banking consultant Donald Musso, president of FinPro Inc. in Gladstone. "This is like the final straw for this deal; either it gets done this time or it doesn't."

Other banking industry observers were not so sure.

"There were other indications it might be approved in the past, and it wasn't," said bank consultant Robert E. Kafafian, president of the Kafafian Group in Parsippany.

The bank agreed to pay $25 million in loan subsidies to borrowers, an additional $2.25 million for community programs and a $5.5 million fine.

Investors think the settlement will move the merger forward. Shares of Hudson City rose 36 cents, or 3.8 percent, to $9.63 on Thursday, and M&T shares gained $1.06 to $119.05.

The merger, valued at $3.7 billion when it was announced in August 2012, will bolster M&T's earnings prospects and result in the elimination of more than 300 jobs at Hudson City's Paramus headquarters.

The deal was delayed at first by the Fed's concerns about the adequacy of M&T's anti-money-laundering practices and procedures, In April, reports of a federal investigation into Hudson City's minority lending added another layer of uncertainty, which has now been set aside.

Hudson City does the majority of its lending in New Jersey and the New York City area, and it has the third-highest market share by deposits in Bergen County, behind Bank of America and TD Bank.

The Fed has said it will rule on M&T's merger application by the end of this month, which would allow time for the banks to close the deal around the end of October. Both banks have continued to say they cannot give any assurance the deal will go through.

M&T did not immediately respond Thursday to a request for comment, and Hudson City officials could not be reached.

Concerns about Hudson City's minority lending were first raised in relation to the merger in the latter half of 2012, when fair-lending watchdogs in New York City and New Jersey protested against the tie-up. They pointed out government data to the regulator that showed Hudson City's black and Hispanic loan-denial rates were higher than those for whites, and that the bank made very few conventional home-purchase loans to black borrowers.

According to an analysis by New York City-based Inner City Press/Fair Lending Watch, which looked at 2011 government lending data in New York City and surrounding counties — including Bergen, Passaic, Hudson and Essex — Hudson City denied home loans to black borrowers 3.21 times more frequently than whites.

Matthew Lee, executive director of Inner City Press/Fair Finance Watch in the South Bronx, said Thursday that he is not convinced the settlement will change mortgage lending and marketing behaviors, even if M&T takes over Hudson City's mortgage-lending business, and that he continues to oppose the merger.

"I haven't seen any plans for M&T to turn [Hudson City's minority lending record] around," Lee said, adding, "We will be commenting to the Fed that imposing a discrimination tax is not enough."

Data for 2014 released by the government earlier this week showed Hudson City's record of lending to blacks remained weak, Lee said. Hudson City made 233 mortgage loans last year to whites and only one loan to an African-American borrower in an assessment area that includes New York City and Jersey City, Lee said. Hudson City's loan application denial rate was 18 percent for whites and 75 percent for African-Americans in that market area, Lee said.

"No bank was worse than Hudson City when it came to turning their backs on the low- and moderate-income community," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, who withdrew her objection to the merger after negotiating community investment programs with M&T.

She said Thursday that she is "gratified" to hear of the settlement and hopes that the merger will be completed.

"I am confident M&T will provide below-market mortgage products and will continue to work with Citizen Action to meet credit needs of low- and moderate-income borrowers," she said.

Hudson City has 135 branches — 97 in New Jersey, 29 in New York State and nine in Connecticut. M&T has more than 725 branches in New York, Pennsylvania, Maryland, Delaware, Virginia, West Virginia and the District of Columbia.

This article contains material from Bloomberg News.

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