Despite what the media wants us to believe, the U.S. has come a long way since the days of the rampant and blatant discrimination in lending practices we witnessed in the 1930s.
Unfortunately, we still have a rather large patch of ground to cover.
According to a 2016 study published in the Journal of Urban Economics, mortgage loan discrimination often begins well before the acceptance or rejection of a loan application – often during the preliminary stages.
For example, a 2016 study, published in the Journal of Urban Economics, showed that loan officers ignored emailed questions from African Americans 1.8 percent more often than those from white applicants, which is “equivalent to the effect of having a credit score that is 71 points lower.”
The truth is, despite landmark court decisions and studies, there is still discrimination in lending against Americans of color, in some parts of the country.
What is discrimination in lending?
When lenders violate one of two federal laws, the Fair Housing Act or the Equal Credit Opportunity Act (ECOA), they are guilty of discrimination.
The Fair Housing Act lists seven methods of discrimination that are illegal:
- Familial status
- Race
- Color
- Religion
- Gender
- National origin
- Disability
Some Americans are exempt from the law. These include:
- An owner who lives in a building with four units or less.
- Any owner of three or fewer single-family homes who does not use the services of a licensed broker when a property is sold or rented.
- Any dwelling owned or operated by private clubs or organizations to which one must be a member to live there.
The ECOA, on the other hand, is specific to those who offer credit. It forbids discrimination against not only the Fair Housing Acts protected classes but also on the basis of whether an applicant receives public assistance, marital status and age.
Lenders are free to ask you for some of this information, but only under certain circumstances and never are they allowed to ask your religion.
The laws apply to any lender who loans the money to a consumer to purchase, repair, build or improve a dwelling. It also applies to selling, renting, appraising and brokering real property.
The anti-discrimination laws must be applied equally to all mortgage applicants and the lending industry, more than others, is tasked with ensuring that their policies do not exclude or burden those in protected classes, according to the Federal Fair Lending And Credit Practices Manual.
How to protect yourself against mortgage discrimination
Many Americans are confused about their rights and the laws that protect these rights. Discrimination in lending practices, although sometimes blatant, can be evidenced in more subtle ways.
In fact, according to the FDIC, U.S. courts have indicated three types of proof of mortgage discrimination:
- Overt discrimination
- Disparate treatment – Described as “when a lender treats applicants differently based on one of the prohibited factors”
- Disparate impact – “when a lender applies a practice uniformly to all applicants but the practice has a discriminatory effect on a prohibited basis and is not justified by business necessity”
The disparate treatment and disparate impact proofs are so subtle that you’ll need to know the warning signs. The Consumer Financial Protect Bureau has some tips for you:
- The lender tries to discourage you from applying for a mortgage.
- You notice different treatment in person than on the telephone or in emails.
- You are qualified yet the lender rejects your application.
- The lender doesn’t supply you with a reason for rejecting your application.
- You are treated differently in person than on the phone.
- The interest rate you are offered is higher than that for which you originally applied and you are certain you qualify for the lower rate.
Then, shop among several lenders. Not only will this help you find the best rates and terms, but any offer that is blatantly discriminatory will stand out among the others.
What to do if you think you’re a victim of mortgage discrimination
The first step to take if you feel you’ve been discriminated against is to bring it to the attention of the lender, claims Nikitra Bailey of the Center for Responsible Lending, at nerdwallet.com.
Then, start filing complaints. Your state’s attorney general should be notified and you can find out how to do that at naag.org.
Then, file complaints with the Consumer Financial Protection Bureau and with the U.S. Department of Housing and Urban Development.
Sure, it’s easy to take the best lending offer and ignore the lender who is discriminating. By filing a complaint, however, you are helping to protect others from illegal lending practices.
