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$32.75M settlement proposed in mortgage discrimination case in the Northeast

MIAMI - JULY 29: A bank owned sign is seen in front of a foreclosed home July 29, 2010 in Miami, Florida. RealtyTrac Inc. today annouced that South Florida ranks tenth in nationwide foreclosures and that the Miami metro area, which includes Palm Beach, Broward and Miami-Dade counties, led all regions with 94,466 homes in some stage of foreclosure from January through June. (Photo by Joe Raedle/Getty Images)

MIAMI - JULY 29: A bank owned sign is seen in front of a foreclosed home July 29, 2010 in Miami, Florida. RealtyTrac Inc. today annouced that South Florida ranks tenth in nationwide foreclosures and that the Miami metro area, which includes Palm Beach, Broward and Miami-Dade counties, led all regions with 94,466 homes in some stage of foreclosure from January through June. (Photo by Joe Raedle/Getty Images)  (2010 Getty Images)

Mortgage discrimination against black and Hispanic communities has led to a proposed $32.75 million settlement between Hudson City Savings Bank and the federal government.

The New Jersey-based lender located branches, chose mortgage brokers and marketed loans that discouraged borrowers in predominantly minority communities, said the Consumer Financial Protection Bureau and Justice Department Thursday.

Those specific practices show that Hudson City violated federal law by structuring its business to avoid providing credit based on race and national origin, said U.S. Attorney Paul J. Fishman of the District of New Jersey.

Pending court approval, Hudson City would need to pay $25 million for a loan subsidy program to increase access to mortgages in black and Hispanic neighborhoods. It would also owe $2.25 million for community programs and outreach and $5.5 million in penalties.

The settlement and other government investigations into the lending policies of other banks indicates that redlining — a form of segregation dating back to the 1930s that deprives minority homebuyers — remains a problem decades after the passage of the 1968 Fair Housing Act.

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Hudson City has $35.4 billion in assets and 135 branches in New Jersey, New York, Connecticut and Pennsylvania. The government announced the deal as M&T Bank is attempting to finalize its acquisition of Hudson City.

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