- Mortgage discrimination is often subtle and difficult to detect.
- A non-minority applicant who is approved for a higher loan amount despite being less qualified than a minority applicant is an example of mortgage discrimination.
- Shopping with several lenders and comparing offers can make it easy to see if you have been discriminated against.
Home ownership is an important part of building wealth for many Americans, which is what makes discrimination during home purchases and mortgages so harmful.
Mortgage discrimination is a kind of housing discriminationand often difficult to detect. To protect yourself, it’s important to know what constitutes mortgage discrimination, what it usually looks like, and what you can do if you think you’ve been discriminated against.
What is the mortgage distinction?
If a lender is making decisions about their mortgage approvals or policies based on certain protected characteristics, that is mortgage discrimination.
Both the Fair Housing Act and the Equal Credit Opportunity Act (ECOA) prohibit mortgage discrimination.
According to the Fair Housing Act, discrimination based on the following characteristics is prohibited:
- race or color
- Gender (including gender, gender identity, sexual orientation, and sexual harassment)
- Marital status
- national origin
ECOA also prohibits discrimination on the basis of:
- race or color
- national origin
- Gender (including gender identity and sexual orientation)
- Marital Status
- Age (provided that the applicant has the ability to enter into a contract)
- The applicant’s receipt of income from the public assistance program
- The applicant’s exercise, 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 are a member of a particular group—often more precisely.
Discriminatory policies can fall into two categories: differentiated impact or differentiated treatment.
With varying impact, a lender may have the same policies for all borrowers, but they affect some borrowers differently than others. An example is if a lender looks at gross income For all applicants, however, taxable income is not treated differently from non-taxable income. This can disproportionately affect those who receive non-taxable income, such as individuals with disabilities or the elderly, and lead them to qualify for less than they can actually afford.
With differentiated treatment, borrowers are treated differently based on the protected characteristics.
This can be explicit, such as a lender declaring that it does not provide loans to certain groups or offering different conditions to applicants based on the categories protected. It can also be more accurate, and can be recognized only when comparing similar applicants with different results.
An example would be if two applicants have negative information on their credit reports, but the lender decides to work with one applicant, who is not a minority, while denying the other, which is a minority.
How to recognize mortgage discrimination
Detecting mortgage discrimination can be difficult, because it often only becomes apparent when comparing similar applications that have had different results.
fair housing groups such as Fair Housing Justice Center (FHJC), a New York nonprofit that works to eliminate housing discrimination, sends testers to lenders suspected of engaging in mortgage discrimination. These testers represent potential loan applicants and collect data on how the lender deals with different types of applicants.
In these tests, FHJC national field advisor Fred Freiberg says, they have seen white applicants with less qualified applications receive bids for larger loan amounts than minority testers with stronger applications. White testers often receive more help from lenders, too.
“White testers are often trained in ways they can improve their financial position and break into a higher price range and higher house prices,” Freiberg says. “And this training did not happen often with the testers they were matched 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 protected properties. This is why testing done by groups like the FHJC is so important.
“Most people don’t know they’ve been discriminated against,” Freiberg says.
While people cannot perform these types of tests on their own, you can make some of your own comparisons by Get pre-approved With a few different lenders. When you shop with several lenders, you can see if any of the terms offered to you by one lender sound unusual compared to the other pre-approvals you have received.
“But in most cases, people don’t do that, they just go and meet one person,” says Shay Belcon, FHJC’s National Investigations and Projects Coordinator. “So they don’t necessarily have a good idea of whether they’ve been discriminated against.”
It’s also a good idea to have a basic understanding of what lenders are looking for when approving an applicant for a mortgage. If you get a file conventional loanyou will usually need Balance level No less than 620, a Debt to Income Ratio (DTI) less than 50%, and a push down 3% at least.
If a mortgage has been denied and you are not sure why, you have the right to ask. Acceptable reasons for rejecting a mortgage application include very high DTI data or negative information on your credit report.
How to report mortgage discrimination
If you feel that you may be discriminated against, you can reach out to your local fair housing organization for assistance. They can help you file a complaint with the appropriate government agencies, and they may be able to help you if you decide to take legal action. They may also send testers to the lender in an effort to gather evidence of discriminatory practices.
“The burden of enforcing fair housing and fair lending laws should not fall exclusively on victims of discrimination,” Freiberg says. We all have a responsibility to get rid of this problem.”
If you want to report housing discrimination, you can do so Submit a complaint to HUD or the Consumer Financial Protection Bureau. Most states also have a department where you can file fair housing complaints.
* Does not have state-linked equitable housing assistance