Navy Federal says external review finds ‘non-race factors’ explained mortgage approval disparities

By Casey Tolan and Rene Marsh, CNN

(CNN) — The nation’s largest credit union said this week that an external review found it hadn’t considered race in mortgage underwriting, responding to CNN’s previous reporting about racial gaps in its mortgage approval rates.

Navy Federal Credit Union, which has more than 13 million members and lends to military servicemembers, Department of Defense personnel, veterans and their families, said a review it commissioned from a civil rights lawyer “found no race-based decision making in our mortgage underwriting” and that “legitimate, non-race factors” had largely explained racial differences in approval rates.

A CNN investigation published in December found that Navy Federal approved more than 75% of the White borrowers who applied for a new conventional home purchase mortgage in 2022 while approving less than 50% of Black borrowers who applied for the same type of loan, according to the most recent federal data available from the Consumer Financial Protection Bureau.

The nearly 29-percentage-point gap in Navy Federal’s approval rates was the widest of any of the 50 lenders that originated the most mortgage loans in 2022. The disparity remained even after accounting for more than a dozen different variables available in public mortgage data, including applicants’ income, debt-to-income ratio and property value, CNN’s review found.

In addition, an analysis by staff of the Senate Banking Committee, which 10 Democratic senators cited in a letter asking federal regulators to review Navy Federal’s mortgage lending earlier this year, also found racial disparities in Navy Federal’s mortgage approval rates based on the publicly available data.

Navy Federal said Thursday that an analysis it had commissioned by lawyer Debo Adegbile, a former member of the U.S. Commission on Civil Rights, found that those racial disparities were largely accounted for by examining “all non-public underwriting factors.”

“Our review found that when all relevant factors are controlled for, which CNN did not do, the difference in approval rates between Black and White borrowers falls to less than 1%,” Adegbile said in a statement. “The remaining difference in approval rates is explained by legitimate, non-race factors like income verification and incomplete credit applications.” The analysis also accounted for other non-public factors including applicants’ credit scores, the statement said.

A spokesperson for Navy Federal did not respond to a request for additional details about the analysis.

As CNN previously reported, applicants’ credit scores are not available in the public mortgage data, and Navy Federal declined to provide CNN any data that would make it possible to analyze credit scores or other non-public factors.

CNN’s analysis only included mortgage applications that were listed in the public data as being fully submitted and either approved or denied, and excluded those that were listed as “closed for incompleteness.” And while Navy Federal’s statement said its analysis included applicants’ debt-to-income ratios, CNN’s review also took those ratios, which are available in the public mortgage data, into account.

Navy Federal described Adegbile’s analysis as an “external review,” but his law firm, WilmerHale, is also defending Navy Federal in a class-action lawsuit from Black and Latino borrowers who allege the credit union discriminated against them in mortgage applications.

The same day that Navy Federal released a statement about the review, other lawyers from WilmerHale filed a motion to dismiss the lawsuit, which had cited CNN’s reporting. Attorneys for the credit union argued that the “alleged statistical disparities” the plaintiffs had cited were not sufficient to prove discrimination, and that they “fail to identify any Navy Federal policy or practice that caused any disparity.”

The lawyers also argued that agreements the plaintiffs had signed when they became members of the credit union had required them to give Navy Federal adequate notice before filing a lawsuit, and that most had not done so.

Adegbile’s analysis was not included in Navy Federal’s motion to dismiss the case.

The plaintiffs’ attorneys – Ben Crump, Adam Levitt, and Hassan Zavareei – said in a statement that it was “a classic conflict of interest” for Adegbile to review Navy Federal’s practices at the same time his firm was defending the credit union in court.

“Navy Federal should immediately put out the full investigative report and data analysis so that Navy Federal’s members have an opportunity for themselves to review the findings,” the statement said.

In its statement, Navy Federal also said it was “currently examining initiatives to build on our mission of expanding access to credit for our diverse community of members and continue our efforts to address systemic barriers to homeownership.”

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