Impartial Mortgage Procedure

Racist, ethnic, and other biases have traditionally affected homeownership. Several studies have described the decline of racial disparity in housing as “slow, uneven, and unstable,” even in regions where it has improved. There has been little or no progress in several places. Moreover, events like the 2008 Great Recession and the COVID-19 epidemic reduce minority homeownership rates, especially in Latino and African neighborhoods. According to other research, LGBTQ+ populations encounter obstacles in gaining access to funding.

Notwithstanding laws prohibiting Discrimination in the housing market, research indicates that racial prejudice, notably in the mortgage approval process, exacerbates racial segregation and contributes to the racial wealth disparity. This essay examines the existence of Discrimination in the mortgage lending business.

Several types of Discrimination

For many families, their house is their most valuable asset, representing much of their total wealth. This is especially true for non-white and Hispanic households, whose homes represent a substantial share of their wealth. However, there are significant racial disparities in the average house worth of families:

• Black households: $150,000
• Families Hispanic: $200,000
• Non-Hispanic White families: $230,000

Most people cannot afford a house outright, so they must be authorized for a mortgage. This approval procedure includes several actions that will assist them in obtaining a mortgage. The financing sector is essential for homeownership and is a growing industry. Freddie Mac predicts that home demand will increase despite the consequences of the COVID-19 epidemic. The agency predicts that house sales will reach 6.9 million in 2022 and 7 million in 2023, while mortgage originations will increase from 2 $2.1 trillion in 2022 to $2.2 trillion in 2023. In 1999, the Urban Institute produced a detailed evaluation of the data indicating that minority homeowners in the United States suffered Discrimination from mortgage lending companies in two key ways:

• Differential Treatment: When eligible minority homeowners are discouraged from obtaining a loan, refused a loan, or provided disadvantageous loan conditions due to their race or ethnicity.
• Disparate Impact: This kind of Discrimination emerges when minority loan applicants are excluded at a greater rate than white loan applicants in a way that cannot be explained as a business requirement, even though the reasons for this disparity are not immediately apparent.

Discrimination in Mortgages and Homeownership

The Fair Housing Act forbids all forms of housing discrimination. The 1968 legislation prohibited housing discrimination based on race, religion, gender, family situation, handicap, or ethnicity. The objective was to guarantee everyone had access to housing, whether via house purchases or rent.

Notwithstanding the statute, African American homeownership rates continue to be disproportionately lower than white people’s. This indicates that prejudice may be persistent and affect the homeownership rates of minorities. According to Alanna McCargo of the Urban Institute, the homeownership gap across racial and ethnic groups widens. “We have not just failed to progress; we are regressing.” And we cannot continue to regress. As of the second quarter of 2022, over 74.5% of homeowners were white non-Hispanic Americans. According to the St. Louis Fed, this compares to 45.3% of Black Americans and 57.3% of all other races, including Asians, Native Hawaiians, and Pacific Islanders.

Even when they qualified for prime loans, Black and Hispanic customers were more likely to be granted subprime loans than White and Asian Americans, according to McCargo, who also noted that their recovery rates were slower than Whites’.

Disparate Rates of Rejection and Segregation

According to research conducted by the National Community Reinvestment Coalition in 2022, racial prejudice in mortgage financing remains. While most forms of Discrimination in the housing market have decreased or ceased (including the most extreme conditions, such as lying about the availability of advertised housing units), Black and Hispanic borrowers still face disproportionately high rejection rates, according to the authors of the study. According to the report, racial disparities in loan rejection declined marginally between the 1970s and 2020; however, Blacks, Hispanics, and Asians continue to pay more for mortgages. This kind of Discrimination reinforces racial segregation by directing individuals with weak preferences to communities with persons of similar racial origins. This exacerbates the racial wealth divide by making it more difficult for Blacks to accumulate money.

This conclusion is supported by further research, including a 2019 LendingTree analysis that found racial variations in loan refusal rates. This data indicates that Black borrowers have the most incredible rejection rates, at 17.4%, while non-Hispanic White borrowers have the lowest, at 7.5%. LGBT+ couples encounter prejudice in the mortgage loan business as well. These couples were rejected at a rate 73% greater than heterosexual couples with comparable loan applications. Also, they were more likely to incur more outstanding fees and interest rates.

Discrimination in the Past and Laws

Historically, Discrimination has influenced the mortgage approval process in the United States. Others consider housing inequality to be a continuing consequence of past inequality. During the 20th century, the Federal Housing Administration (FHA) pushed white middle-class homeownership. Redlining and restrictive covenants, among other tactics, restricted blacks’ access to federally subsidized housing and mortgage insurance.

As previously mentioned, the Fair Housing Act makes unlawful housing discrimination based on race, ethnicity, and other characteristics. The Fair Housing Act, a follow-up to the 1964 Civil Rights Act, was passed in the days after the killing of Martin Luther King Jr., who became associated with the fight for fair housing during the 1966 open housing marches in Chicago. According to some, the Fair Housing Act’s principal purpose was to “curtail discrimination in the housing sector.” The Equal Credit Opportunity Act (ECOA) of 1974 increased safeguards to dealings with locations that frequently grant credit, including banks and other organizations that offer house loans. It renders Discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance unlawful.

Discrimination in Housing in the Digital Age

The emergence of digital applications swept across the financial industry as customer demand for financial service accessibility increased, altering how institutions do business. Nowadays, digital mortgage platforms facilitate the application and approval of mortgage loans. But, it also raises problems about how they approach market discrimination.

Research conducted by the University of California, Berkeley, demonstrated that fintech did not eliminate prejudice. According to the study, many loan rejection rates exhibit no bias. Nevertheless, although algorithmic lenders reduced rejection rate inequalities, they did not eradicate “illegal discrimination.” This is because they may profile customers for low-shopping behavior and those that operate in regions with lower competition. Refinancing mortgages cost Latinx and Black borrowers $765 million more per year than it did for white borrowers.

An analysis by The Markup revealed that, despite having comparable financial credentials, lenders denied more minority mortgage applications in 2019 than white applicants. Despite the use of algorithms, minority applicants were 40% to 80% more likely to be rejected for home loans than white buyers. The research also noted the typically non-refundable charges involved with mortgage applications as another strike against those denied.

Which Act Banned Housing Discrimination?

The Fair Housing Act was enacted in 1968, prohibiting housing discrimination based on race, religion, national origin, gender, skills, or family status. The Act’s provisions ban Discrimination in connection with all housing types’ purchase, sale, rental, and financing.

What are the indicators that my lender discriminated against me?

You might have been the victim of Discrimination if you were refused a mortgage while being eligible, discouraged from applying, or given a loan with less favorable terms and circumstances. If your lender canceled your account without a good cause, you might have been discriminated against.

How can I file a complaint against a mortgage lender for Discrimination?

If you suspect a mortgage lender has discriminated against you for any reason, you may file a complaint with the Consumer Financial Protection Bureau. Check the appropriate website for further information, as some state governments protect citizens against other sorts of Discrimination.

The Bottom Line Homeownership accounts for up to 40 percent of the wealth of a typical American family. This suggests that the mortgage approval procedure might be a significant obstacle to financial security. McCargo’s testimony highlighted many alterations that, according to her, would improve the situation. Her suggestions included the following:

• It is encouraging an equitable housing financing system that considers the reality that minorities are more likely to lack a credit history.
• They are expanding credit access.
• Updating credit scoring systems.
• Modernizing the FHA.

McCargo proposed, among other things, the improvement of down payment assistance programs, the creation of a “strong small-dollar mortgage market,” and outreach and counseling for renters and home-ready millennials.