Fairway Independent Mortgage Lawsuit: Redlining and Class Action

Fairway Independent Mortgage Corporation is facing two significant legal actions: a resolved 2024 federal redlining lawsuit brought by the Consumer Financial Protection Bureau and the Department of Justice over its lending practices in Birmingham, Alabama, and a pending 2025 class action in Florida tied to its acquisition of Hallmark Home Mortgage. The Birmingham matter ended in a consent order requiring roughly $10 million in penalties and remedial spending. The Florida case, filed in December 2025, alleges Fairway inherited liability for a construction kickback scheme that predates the acquisition.

The Birmingham Redlining Lawsuit

On October 15, 2024, the CFPB and DOJ jointly sued Fairway in the U.S. District Court for the Northern District of Alabama, alleging a pattern of illegal redlining from at least 2018 through 2022 in the Birmingham-Hoover metro area, where Fairway operated under the name MortgageBanc.¹ The complaint alleged violations of the Fair Housing Act, the Equal Credit Opportunity Act and Regulation B, and the Consumer Financial Protection Act.²

The government’s theory was that Fairway discouraged mortgage applications from majority-Black neighborhoods by concentrating its offices, marketing, and referral networks in white areas. Key allegations included:

Every Fairway retail loan office and production desk in the Birmingham area sat in a majority-white location from 2015 through 2022. The company had not kept a retail office in Jefferson County, which contains all of the metro area’s majority-Black census tracts, since 2016.²
Between 2018 and 2020, less than 3% of over 20,000 direct mailings went to consumers in majority-Black areas, and only about 1% of mailings with images featured a non-white person.²
Less than 3% of Fairway’s referrals came from sources located in majority-Black areas.²
From 2018 to 2022, only 3.7% of Fairway’s Birmingham loan applications were for properties in majority-Black areas, compared with 12.2% for peer lenders. In neighborhoods where 80% or more of residents were Black, peer lenders generated applications at more than eight times Fairway’s rate.¹
Fairway’s own fair-lending monitoring flagged redlining risks, but the company did not adopt a written marketing or growth plan to address them until October 2022.¹

What the $10 Million Settlement Requires

The U.S. District Court for the Northern District of Alabama entered the consent order on December 3, 2024, making its terms legally binding.³ The financial obligations run to roughly $10 million:

A $7 million loan subsidy program funding affordable home purchase, refinance, and home improvement loans for borrowers in majority-Black neighborhoods in the Birmingham metro area. Subsidies may take the form of below-market rates, down payment assistance, closing cost grants, or initial mortgage insurance premiums, capped at $14,000 per applicant unless the CFPB approves more.⁴
A $1.9 million civil penalty paid into the CFPB’s victims relief fund.³
At least $500,000 for advertising and outreach, including two annual outreach programs for real estate professionals in majority-Black neighborhoods.⁴
At least $250,000 for consumer financial education, with a minimum of two education events per year.⁴
At least $250,000 for community partnerships providing services like home repair grants, financial education, or foreclosure prevention.⁴

The order also imposes operational and compliance mandates. Fairway must open or acquire a full-service retail office in a majority-Black neighborhood within seven months of the effective date, placing that deadline around July 2025. The company must designate a full-time Manager of Community Lending, assign at least one full-time mortgage loan officer to the new office, and commission an independent market study of credit needs in majority-Black neighborhoods.⁵

On the compliance side, Fairway must provide annual fair-lending training for relevant staff and board members, submit annual compliance reports under oath to the CFPB and DOJ, and retain compliance records for at least seven years.⁵ As of mid-2026, the case status is listed as Post Order/Post Judgment. Publicly available records do not detail Fairway’s specific compliance progress, including whether the new office opened by the July 2025 deadline.³

Fairway’s Response to the Redlining Claims

Fairway denied engaging in discriminatory lending and called the complaint “intentionally inflammatory in nature,” accusing the agencies of mischaracterizing the situation.⁶ The company contended that it took more loan applications and funded more loans in majority-Black census tracts than any other nonbank lender with a physical presence in the Birmingham metro. Fairway argued the government’s methodology measured the racial balance of a lender’s overall loan distribution rather than the actual volume of loans in minority areas, so a large lender doing most of its business in white neighborhoods could look worse than smaller peers even while originating more raw loans in Black neighborhoods.⁷

The company also said regulators refused to count loans made to residents of majority-Black census tracts who bought property outside their immediate neighborhoods, calling that omission a “preference for furthering racial segregation.”⁶ Fairway maintained that demands for proportional lending distribution across racial geographies amounted to an unconstitutional racial quota.⁷ The company said it agreed to settle to “resolve the matter and curb the further expenditure of resources.”⁸

The Hallmark Home Mortgage Class Action

In June 2025, Fairway acquired the assets of Hallmark Home Mortgage, an Indiana-based lender licensed in 20 states. The deal was structured so Hallmark would continue operating as a new division under the brand “Hallmark Home Mortgage, Powered by Fairway.”⁹

On December 29, 2025, a class action was filed in the U.S. District Court for the Middle District of Florida naming both Fairway and Hallmark as defendants. The case, Saurez v. Steel X Homes, LLC et al., alleges a years-long kickback and construction fraud scheme centered on Steel X Homes, a Florida homebuilder run by Richard Rivera and Paavo Salmi.¹⁰

According to the complaint, borrowers were steered to Hallmark as a “preferred lender” for Steel X construction projects and offered a 6% discount. The suit alleges Hallmark inflated loan amounts by 6% and secretly kicked the difference back to Steel X, violating the Real Estate Settlement Procedures Act. Hallmark loan originator Catalina Rebolledo, who was married to Rivera, allegedly processed these loans and structured them around construction benchmarks that were later fabricated or never met. The complaint also says Hallmark released construction draws to Steel X when building milestones had not been reached.¹¹ The complaint further alleges that Kaye Flanagan, a former Hallmark Senior Vice President, directed contractors to strip steel from one construction site and move it to another, then told the affected homeowners to file insurance claims for the missing materials as if they had been stolen.¹⁰

Plaintiff’s attorneys say the scheme affected approximately 100 families left with unfinished homes and active mortgages, with tens of millions of dollars in loans potentially involved.¹¹ The lawsuit includes counts of civil racketeering and violations of the Florida Deceptive and Unfair Trade Practices Act alongside the RESPA claims. The plaintiff argues Fairway inherited Hallmark’s liability through the acquisition and that the original Hallmark entity can no longer pay its debts. The alleged conduct predates the acquisition, and Fairway is named through the deal itself. As of early 2026, none of the defendants had formally responded, and there had been no rulings on the merits.¹⁰

State Regulatory Actions

Fairway has also faced state-level enforcement. In October 2021, the Vermont Department of Financial Regulation issued a consent order finding that Fairway failed to provide timely breach notifications after a phishing attack on its corporate email accounts discovered in September 2020. The company notified the state regulator 186 days past the 14-business-day deadline and notified affected consumers 177 to 260 days past the 45-day statutory window. Fairway paid a $54,450 civil administrative penalty and agreed to implement an internal information security program and retain third-party vendors for future breach compliance.¹²

A separate consent order was issued by the California Department of Financial Protection and Innovation on December 31, 2025. Public details of its substance were not available in the records reviewed.¹³

1
Consumer Financial Protection Bureau. CFPB and Justice Department Take Action Against Fairway for Redlining Black Neighborhoods in Birmingham, Alabama
2
U.S. Department of Justice. Complaint, Consumer Financial Protection Bureau v. Fairway Independent Mortgage Corporation
3
Consumer Financial Protection Bureau. Fairway Independent Mortgage Corporation Enforcement Action
4
U.S. Department of Justice. Proposed Consent Order, CFPB v. Fairway Independent Mortgage Corporation
5
U.S. Department of Justice. Consent Order, CFPB – United States v. Fairway Independent Mortgage Corporation
6
Scotsman Guide. Fairway Gets Hit With Redlining Penalty, Disagrees With Allegations
7
American Banker (via Fairway press materials). Fairway Independent Mortgage Corporation Response to CFPB and DOJ
8
Realtor.com. Fairway Mortgage Lender Redlining Alabama
9
Fairway Independent Mortgage Corporation. Fairway Acquires Assets of Hallmark Home Mortgage
10
Mortgage Professional America. Class Action Accuses Fairway, Hallmark of Loan Originator Kickback Scheme
11
National Mortgage News. Fairway’s Hallmark Home Mortgage Named in Ponzi Scheme Suit
12
Vermont Department of Financial Regulation. Fairway Independent Mortgage Corporation Stipulation and Consent Order
13
California DFPI. Fairway Independent Mortgage Corporation Enforcement Action