Definition, how to report it
- Mortgage discrimination is often subtle and difficult to spot.
- A non-minority applicant who gets approved for a higher loan amount despite being less qualified than a minority applicant is an example of mortgage discrimination.
- Shopping around with several lenders and comparing offers can help you more easily determine if you have been discriminated against.
Home ownership is an important part of building wealth for many Americans, which makes discrimination in the home buying and mortgage application process so harmful.
Mortgage discrimination is a type of housing discrimination, and it can often be difficult to spot. 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 mortgage discrimination?
If a lender makes decisions about their mortgage approvals or policies based on certain protected characteristics, this is considered mortgage discrimination.
Mortgage discrimination is prohibited by the Fair Housing Act and the Equal Credit Opportunity Act (ECOA).
According to the Fair Housing Act, discrimination based on the following characteristics is prohibited:
- race or color
- Sex (including gender, gender identity, sexual orientation and sexual harassment)
- Family status
- national origin
The ECOA also prohibits discrimination based on:
- race or color
- national origin
- Sex (including gender identity and sexual orientation)
- Marital status
- Age (provided the applicant has the capacity to contract)
- Received by the applicant from an income from a public assistance program
- 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’re a member of a specific group – it’s often more subtle.
Discriminatory policies can fall into one of two categories: disparate impact or disparate treatment.
With disparate impact, a lender may have the same policies for all borrowers, but they impact some borrowers differently than others. An example of this would be if a lender looks at the gross income of all of its applicants, but does not treat taxable income any differently than non-taxable income. This could have a disproportionate impact on those who receive non-taxable income, such as the disabled or the elderly, and cause them to qualify for less than they can actually afford.
With disparate treatment, borrowers are treated differently based on the characteristics protected.
This may be overt, such as a lender stating that it does not lend to certain groups or offering different terms to applicants based on protected classes. It may also be more subtle and only recognizable when comparing similar candidates who have different results.
An example of this would be if two applicants had negative information on their credit reports, but the lender decides to work with one applicant, who is not a minority, while refusing the other, who is a minority.
How to recognize mortgage discrimination
It can be difficult to spot mortgage discrimination, as it often only becomes apparent when comparing similar applications that have had different results.
Fair housing groups like the Fair Housing Justice Center (FHJC), a nonprofit in New York that works to eliminate housing discrimination, send testers to lenders suspected of engaging in mortgage discrimination. These testers pose as potential loan applicants and collect data on how the lender treats different types of applicants.
Fred Freiberg, FHJC’s national field consultant, says that in these tests, they saw white applicants with less qualified applications receive quotes for larger loan amounts than minority testers who had stronger applications. White testers also often received more help from lenders.
“Often, white testers have been coached on ways to improve their financial situation and break into a higher price range and higher real estate price,” Freiberg says. “And that coaching didn’t happen often with the testers they were paired with.”
When a lender offers you a mortgage, it’s hard to know if the lender is offering you less favorable terms based on protected features. This is why testing by groups like FHJC is so important.
“Most people wouldn’t know they’ve been discriminated against,” Freiberg says.
While individuals can’t do this type of testing on their own, you can do some of your own comparisons by getting pre-approved from a few different lenders. As you shop around with multiple lenders, you can see if any of the terms offered to you by one lender seem unusual compared to other pre-approvals you have received.
“But in most cases people don’t do that, they’re just going to meet one person,” says Shaye Belcon, FHJC’s National Projects and Surveys Coordinator. “So they don’t really have a good idea 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 a mortgage applicant. If you get a conventional loan, you’ll typically need a credit score of at least 620, a debt-to-income ratio (DTI) of less than 50%, and a down payment of at least 3%.
If you have been refused a mortgage and you don’t know why, you have the right to ask. Acceptable reasons for declining a mortgage application include too high a DTI or negative information on your credit report.
How to report mortgage discrimination
If you feel you have been discriminated against, you can approach a local fair housing organization for help. They can help you file a complaint with the appropriate government agencies and may be able to help you if you decide to take legal action. They may also send testers to the lender to try to collect evidence of discriminatory practices.
“The burden of enforcing fair housing and fair lending laws should not rest exclusively with victims of discrimination,” Freiberg said. “We all have a responsibility to solve this problem.”
If you want to report housing discrimination, you can file a complaint with HUD or the Consumer Financial Protection Bureau. Most states also have a department where you can file fair housing complaints.
* Does not have fair housing assistance associated with the state