There was a time in our country’s history when discrimination in lending was blatant and rampant. In the 1930s, for instance, Americans of color were routinely denied mortgages. Several methods were used, the worst of which was redlining (denial of a loan based on the applicant’s address).
Yes, we’ve come a long way in the nearly nine decades since then, but there is convincing evidence that discrimination in mortgage lending still exists.
To avoid becoming a victim, it’s important to understand what are considered discriminatory practices under the law.
What is lending discrimination?
Discrimination in lending or credit occurs when a lender decides to act or makes a decision regarding a mortgage for grounds other than the borrower’s creditworthiness. This can be either intentional or unintentional. For instance, denying an application for a home loan or increasing the annual percentage rate (APR) on a home loan for a property that is located in a “majority-minority neighborhood” would be considered mortgage discrimination. Another example of mortgage discrimination would be treating borrowers differently due to their sex, which includes their gender, gender identity, and sexual orientation.
Discrimination in lending can also take place in other aspects of the house-buying process, such as home appraisals, homeowner’s insurance policies, and mortgage modifications.
Federal laws to protect Americans against discrimination
Two laws are significant to the mortgage industry, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act.
While the latter is aimed at the housing industry as a whole (and covers tenants as well), the former is specific to the lending industry. The ECOA’s anti-discrimination laws apply to anyone who provides mortgages as well as those who rent property, appraise the property, and broker real estate.
It prohibits those offering credit from discriminating against an applicant based on the following:
- Disability
- Familial status
- National origin
- Race
- Color
- Gender
- Religion
- Age
- Marital status
- Whether an applicant receives public assistance
The Fair Housing Act covers all of the above instances of discrimination except the last three. It also exempts certain people from the law. For instance, a landlord who rents out units in a four-unit-or-less building, and lives in the building, is exempt from the Fair Housing Act.
Protect yourself
Discrimination can be quite subtle, so it’s important to know what to look for. An example of this is explained in the results of a Journal of Urban Economics study from two years ago.
The researchers found that much of the lending discrimination that occurs today happens very early in the mortgage process. African Americans, for instance, find that they receive no response from lenders when they email them with questions 1.8 percent more often than white borrowers.
The researchers point out that the results of this are akin to having a credit score that is 71 points lower.
Other subtle forms of mortgage discrimination include a lender who tries to discourage an applicant from applying for a loan and a lender who won’t give a reason for rejection.
Protect yourself by shopping for a loan from several different lenders. Only when you compare offerings will discrimination become obvious.
How to deal with discrimination
If you believe that you have been the target of mortgage discrimination, your first step should be to speak with the lender. Take additional action in the event that the lender provides an explanation that is not satisfactory for what occurred.
First, notify your state’s attorney general’s office. Then, file official complaints with the U.S. Department of Housing and Urban Development and the Consumer Financial Protection Bureau.
