Mortgage Discrimination: How to Know if It’s Happening to You

It’s hard enough to buy a house without someone playing the system against you. Although the predatory and discriminatory lending practices that fueled the 2008 housing crisis have since been banned under the Dodd-Frank Act, discrimination in mortgage lending today is more subtle, more insidious – and can -be just as expensive.

Loosen the grip of strict lending standards

After the housing crash, a tight credit environment reduced the number of mortgages issued to potential homeowners with less than perfect credit, especially minorities. Research by the Urban Institute in 2014 found that a drop of 1.2 million loans could be attributed to the credit crunch, with African American and Hispanic borrowers being disproportionately affected.

Even now that some lending restrictions have been eased, a credit gap persists in America.

“Equal access to mortgage credit for minorities remains a serious issue,” Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, told NerdWallet. “Indeed, equal access to credit for all creditworthy borrowers is a major issue. And, since minorities generally have lower credit scores than non-Hispanic white Americans, this challenge disproportionately affects minority borrowers.

Mortgage discrimination remains

“I hope that many of the unfair practices that we have seen in the market, especially during the recent foreclosure crisis, are no longer present,” said Nikitra Bailey, executive vice president of the Center for Responsible Lending, at Nerd Wallet. The adoption of the Dodd-Frank regulations was intended to stem mortgage abuses such as lump sum payments, indicative interest rates and high fees – known as “wrappers”.

Today, lenders are required to determine in good faith a borrower’s ability to pay a mortgage loan.

“We’ve solved some of the market challenges, but we haven’t eliminated mortgage discrimination,” Bailey concedes.

This discrimination often takes the form of higher mortgage interest rates. Black borrowers pay home loan rates a quarter point higher than comparable white borrowers, according to research by Ping Cheng of Florida Atlantic University, published in 2015 in The Journal of Real Estate Finance and Economics.

The highest rates are most often granted to young borrowers with little education and to black women more than black men, according to the newspaper.

“It is the most financially vulnerable black women who suffer the most,” the study concludes.

Creditworthy minorities without access to credit

However, in many cases, mortgage discrimination not only manifests itself in the form of higher costs, but also by preventing access to a mortgage. And discrimination can impact individual families and entire neighborhoods.

In 2015, the Consumer Financial Protection Bureau and the Department of Justice accused Hudson City Bancorp, a bank in Paramus, New Jersey, of engaging in the practice of “redlining” – excluding all majority black and Hispanic neighborhoods – in New York, New Jersey, Connecticut and Pennsylvania from home mortgage services.

Regulators announced a record $33 million settlement with the bank in September.

“Low-income families and moderate-income families and many borrowers of color have been driven out of the market. Now what we are struggling with is finding a way to ensure that the market actually serves all creditworthy borrowers,” adds Bailey.

What you can do if you are the victim of mortgage discrimination

Federal regulations are clear. The Fair Housing Act prohibits discriminating in the rental or sale of housing – or imposing different terms and conditions on a transaction – based on national origin, race, color, religion, gender, family status or disability. And the Equal Credit Opportunity Act prohibits discrimination in credit based on race, color, religion, national origin, sex, marital status, age and whether a borrower receives income from a public assistance program.

State or local laws may also prohibit discrimination on other grounds.

To avoid mortgage discrimination, potential borrowers should shop around with multiple lenders. Not only will this help you find the best mortgage interest rate, but it could also identify lenders who discriminate with higher rates – or lack of access to credit.

Slight differences in rates from one lender to another – a quarter point or so here or there – are to be expected. But if a lender quotes a rate that seems off base — or denies your request altogether when others haven’t — you might want to raise a flag.

Of course, if a lender offers you a high rate that seems entirely out of place, you’ll naturally want to grab a lower interest rate offer and go about your business. Whether you think a lender is truly discriminatory is worth raising — if not for yourself, then for other potential borrowers who don’t shop with multiple lenders and could be taken advantage of.

So if you suspect discrimination?

“The first thing to do is file a complaint with the lender,” says Bailey of the Center for Responsible Lending. It also offers:

Generally, you should file a complaint within one year, but HUD suggests you file as soon as possible.

Knowing what mortgage discrimination is — and refusing to let it continue — can help your family and future generations live in the safe homes and friendly neighborhoods they deserve.

Hal Bundrick is a writer at NerdWallet, a personal finance website. Email: [email protected] Twitter: @halmbundrick

This article first appeared on NerdWallet.

Previous Chelsea keen to send Charly Musonda Jr. on loan to England
Next Can I get a loan for a mobile home?