Definition, how to report it

  • Mortgage discrimination is often subtle and difficult to spot.
  • A non-minority applicant who gets approval for a higher loan amount despite being less qualified than a minority applicant is an example of mortgage discrimination.
  • Shopping with multiple lenders and comparing offers can make it easier to see if you’ve been discriminated against.

Home ownership is an important part of wealth creation for many Americans, and it is what makes discrimination in the home buying and mortgage application processes so damaging.

Mortgage discrimination is a type of housing discrimination and can often be difficult to spot. To protect yourself, it is important to know what constitutes mortgage discrimination, what it generally looks like, and what you can do if you believe you have been discriminated against.

What is Mortgage Discrimination?

If a lender makes decisions about their mortgage approvals or policies based on certain protected characteristics, this is considered mortgage discrimination.

Mortgage discrimination is prohibited by both the Fair Housing Act and the Equal Credit Opportunity Act (ECOA).

According to the Fair Housing Act, discrimination based on the following characteristics is prohibited:

  • Race or color
  • Religion
  • Gender (including gender, gender identity, sexual orientation, and sexual harassment)
  • Family status
  • national origin
  • Disability

ECOA also prohibits discrimination based on:

  • Race or color
  • national origin
  • Religion
  • Gender (including gender identity and sexual orientation)
  • Marital status
  • Age (provided the applicant has the ability to enter into a contract)
  • Receipt of the applicant from a public assistance program
  • Exercise by the applicant, in good faith, of any right under the Consumer Credit Protection Act.

Types of mortgage discrimination

Mortgage discrimination doesn’t just happen when someone is explicitly denied a loan because they’re a member of a specific group, it’s often more subtle.

Discriminatory policies can fall into one of two categories: disparate impact or disparate treatment.

With a disparate impact, a lender can have the same policies for all borrowers, but they impact differently on some borrowers than others. An example of this would be if a lender considers the gross income of all of its applicants, but does not treat taxable income differently from non-taxable income. This could have a disproportionate impact on those earning non-taxable income, such as the disabled or the elderly, and lead them to qualify for less than they can actually afford.

With disparate treatment, borrowers are treated differently based on protected characteristics.

This can be blatant, for example a lender claims not to lend to certain groups or offers different conditions for applicants based on protected classes. It can also be more subtle and only recognizable when comparing similar candidates who have different results.

An example of this would be if two applicants had negative information about their credit reports, but the lender decides to work with one applicant, who is not a minority, while denying the other, who is a minority.

How to recognize mortgage discrimination

Identifying mortgage discrimination can be difficult, as it often becomes apparent only when comparing similar applications that have had different outcomes.

Fair housing groups like the Fair Housing Justice Center (FHJC), a nonprofit organization in New York that works to eliminate housing discrimination, send testers to lenders suspected of being involved in mortgage discrimination. These testers pose as potential loan applicants and collect data on how the lender treats different types of applicants.

Fred Freiberg, FHJC’s national field consultant, says these tests saw white candidates with less qualified questions receiving quotes for larger loan amounts than minority testers who had stronger questions. White testers often received more assistance from lenders as well.

“Often white testers were educated in ways they could improve their financial situation and get into a higher price range and house price,” says Freiberg. “And that coaching didn’t often occur with the testers they were paired with.”

When you are offered a mortgage by a lender, it is difficult to know if the lender is offering you worse terms based on the secured characteristics. This is why tests performed by groups like FHJC are so important.

“Most people would not know they have been discriminated against,” Freiberg says.

While people can’t conduct this type of testing on their own, you can make some of your own comparisons by getting prior approval with a few different lenders. When you shop with multiple lenders, you can see if any of the terms that have been offered to you by a lender seem unusual compared to the other pre-approvals you have received.

“But in most cases, people don’t, they go to meet with a person,” says Shaye Belcon, the FHJC’s national project and investigation coordinator. “So they don’t really have a good idea if they’ve been discriminated against.”

It is also a good idea to have a basic understanding of what lenders are looking for when approving an applicant for a mortgage. If you’re taking a conventional loan, you’ll typically need a credit score of at least 620, a debt-to-income ratio (DTI) of less than 50%, and a down payment of at least 3%.

If you have been denied a mortgage and are unsure why, you have the right to ask. Acceptable reasons for rejecting a mortgage application include too high a DTI or negative information in the credit report.

How to report mortgage discrimination

If you feel you have been discriminated against, you can contact a local Fair Construction Organization for assistance. They can help you file a complaint with the right government agencies, and they may be able to help you if you decide to take legal action. They can also send testers to the lender to try to gather evidence of discriminatory practices.

“The burden of enforcing fair housing and fair lending laws should not fall solely on the victims of discrimination,” says Freiberg. “We all have a responsibility to clean up this problem.”

If you want to report housing discrimination, you can file a complaint with the HUD or the Consumer Financial Protection Bureau. Most states also have a department where you can file complaints for fair housing.

* Does not have equitable housing assistance associated with the state

Leave a Reply

%d bloggers like this: