Discrimination in lending was blatant and rampant at one time in our country’s history. In the 1930s, for example, Americans of color were routinely denied mortgages. Several methods were used, the worst of which was redlining, or the denial of a loan based on the applicant’s address.
We’ve come a long way in the nearly 90 years since then, but there is convincing evidence that discrimination in mortgage lending still exists. To avoid becoming a victim, it’s important to understand what practices are considered discriminatory under the law.
Federal laws to protect Americans against discrimination
Two laws are of significance to the mortgage industry, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act.
While the latter is aimed at the housing industry as a whole (and covers tenants as well), the former is specific to the lending industry. The ECOA’s anti-discrimination laws apply to anyone who provides mortgages as well as those who rent property, appraise property, and broker real estate.
It prohibits those offering credit from discriminating against an applicant on the basis of:
- Familial status
- National origin
- Marital status
- Whether an applicant receives public assistance
The Fair Housing Act covers all of the above instances of discrimination with the exception of the last three. It also exempts certain people from the law. For instance, a landlord who rents out units in a four-unit-or-less building and lives in the building, is exempt from the Fair Housing Act.
Discrimination can be quite subtle, so it’s important to know what to look for. A study from the Journal of Urban Economics from two years ago explains an example.
The researchers found that much of the lending discrimination that occurs today happens very early in the mortgage process. African Americans, for instance, find that they receive no response from lenders when they email them with questions 1.8 percent more often than white borrowers. The results of this, researchers pointed out, are akin to having a credit score that is 71 points lower.
Other subtle forms of mortgage discrimination include a lender who tries to discourage an applicant from applying for a loan and a lender who won’t give a reason for loan rejection.
Protect yourself by shopping for a loan among several different lenders. Only when you compare offerings will discrimination become obvious.
How to deal with discrimination
If you feel you’ve become a victim of mortgage discrimination, speak with the lender first. If the lender offers an unsatisfactory explanation of what happened, take additional steps.
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