Homeownership is a key aspect of many Americans' wealth-building strategies, which is why discrimination during the homebuying and mortgage application procedures is so detrimental. Mortgage discrimination is a form of housing discrimination in which a borrower's demographics or other qualities influence their loan application. To protect yourself, you should understand what mortgage discrimination is, what it looks like, and what you can do if you believe you have been discriminated against.
Recent studies have shown that mortgage discrimination continues to be a pervasive issue in the United States. According to a 2021 report by the National Community Reinvestment Coalition, Black and Hispanic borrowers are still more likely to be denied mortgages than their white counterparts, even when controlling for factors such as income and credit scores. This persistent inequality not only affects individual families but also perpetuates broader economic disparities across communities.
What is the definition of mortgage lending discrimination?
Mortgage discrimination occurs when a lender makes decisions about loan approvals or policies based on protected characteristics such as gender, religion, or handicap. Mortgage discrimination has existed for decades, dating back to redlining, in which communities were plotted based on economic makeup and utilized to issue and price mortgage loans in the mid-1900s. This made it more difficult and expensive for minorities and low-income families to become homeowners. Redlining has subsequently been declared unlawful, and other regulations have been enacted to combat lending discrimination. We'll go over these in more detail later.
Types of mortgage lending discrimination
Mortgage discrimination isn't simply when someone is denied a loan because they belong to a particular group; it's often more subtle. Discriminatory policies can be classified into one of two types: disparate impact or disparate treatment. With uneven impact, a lender's policies may apply to all borrowers, yet they affect some more than others. For example, if a lender considers all applicants' gross income but does not differentiate between taxable and non-taxable income. This could disproportionately affect those with nontaxable income, such as the disabled or the elderly, causing them to qualify for less than they can afford. As long as you meet credit and debt standards, you can receive a mortgage with Social Security income; however, if you are not required to pay taxes on that income, lenders will often treat it differently from other types of income. Failure to do so can have a disparate impact on borrowers, which may be considered discriminatory.
The rise of digital lending platforms and algorithms has introduced new challenges in the fight against mortgage discrimination. While these technologies promise to streamline the lending process and reduce human bias, they can inadvertently perpetuate existing disparities. A 2022 study published in the Berkeley Technology Law Journal found that AI-driven lending algorithms, when trained on historical data that reflects past discriminatory practices, can reproduce and even amplify these biases in their decision-making processes. This has led to calls for greater transparency and oversight in the use of AI in mortgage lending.
Borrowers receive uneven treatment based on protected qualities. This can be overt, such as a lender announcing that they do not give loans to specific groups or providing different terms to applicants based on protected classes. It can sometimes be more subtle, only becoming apparent when comparing identical candidates with different outcomes. For example, suppose two applicants have unfavorable information on their credit records, but the lender chooses to deal with one, who is white, while denying the other, who is not white.
Overall, mortgage lending discrimination typically falls under one of the following umbrellas: Racial discrimination occurs when a borrower's race or the racial makeup of the community they're buying in influences their mortgage alternatives. Gender discrimination involves a borrower's mortgage application being influenced by their gender identity. Discrimination against those with disabilities, as shown in the example above Age and income discrimination, in which a borrower's age or income level influences one's mortgage process. Other forms of discrimination, such as those based on a borrower's nationality or religion, may be less widespread.
The COVID-19 pandemic has exacerbated existing inequalities in the housing market, including mortgage discrimination. A report from the Urban Institute in 2023 revealed that minority homeowners were more likely to face financial hardships and enter forbearance during the pandemic. This has led to concerns about a potential wave of foreclosures that could disproportionately affect communities of color. Policymakers and housing advocates are now calling for targeted interventions to prevent a widening of the homeownership gap in the aftermath of the pandemic.
Legal safeguards against mortgage loan prejudice. Mortgage discrimination is illegal under both the Fair Housing Act and the Equal Credit Opportunity Act (ECOA).
The Fair Housing Act
The Fair Housing Act was enacted to prohibit discrimination at all stages of the housing market, and it applies to both homebuyers and renters. It has been updated multiple times to incorporate new safeguards. The FHA prohibits discrimination based on the following characteristics: Race or Color Religion Sex (which includes gender, gender identity, sexual orientation, and sexual harassment). Familial Status National origin Disability
Equal Credit Opportunities
Act The ECOA is a statute that governs companies that provide credit to consumers. This can include insurers, mortgage lenders, retail stores, credit card companies, and others. It forbids discrimination based on: Race or Color National origin Religion Sex (gender identity and sexual orientation) Marital status Age (applicants must be able to enter a contract). Applicant receives income from a public assistance program The applicant's good faith exercise of any right under the Consumer Credit Protection Act.
Other Pertinent Laws
Depending on your situation, other laws may also apply to mortgage and housing discrimination, such as the Americans with Disabilities Act, which protects disabled consumers, and the Civil Rights Act, which prohibits broad discrimination based on race, color, religion, gender, or nationality. The Community Reinvestment Act also applies. This is a federal statute requiring banks and credit unions to serve all local borrowers, regardless of income or status.
In recent years, there has been a growing recognition of the intersection between environmental justice and housing discrimination. Studies have shown that communities of color are more likely to be located in areas with higher environmental risks, such as flood zones or proximity to toxic waste sites. This environmental racism can impact property values and insurance rates, creating additional barriers to homeownership. Some progressive lenders and policymakers are now exploring ways to incorporate environmental justice considerations into lending practices to address this compounded form of discrimination.
Identifying Mortgage Lending Discrimination
Spotting mortgage discrimination might be tough because it is typically only apparent when comparing similar applications with different outcomes.
Red Flags
Before taking out a mortgage, you should always shop around with multiple lenders. This not only gets you the best rate, but it also makes it easier to detect discrimination. Once you've received estimates from numerous lenders, consider whether any of the terms supplied by one company are strange in comparison to the other preapprovals you've received. This could be a clue that something is wrong. You should also have a basic awareness of what lenders look for when approving mortgage applications. If you meet those standards yet are denied, it may be a sign of workplace discrimination.
Other symptoms to look for are: Inquiring about your spouse or children (or plans for children), unless they are applying for the loan alongside you. Discourage you from applying for a loan. Pushing you towards credit products with less attractive terms or rates. Being treated differently in person than you were online or over the phone. If you feel you are being discriminated against, contact a lawyer as soon as possible.
Case Studies
Fair housing organizations, such as the Fair Housing Justice Center (FHJC), a New York-based nonprofit dedicated to eliminating housing discrimination, send testers to lenders accused of engaging in mortgage discrimination. These testers pretend as potential loan applicants to collect information about how the lender treats different types of applicants. According to Fred Freiberg, FHJC's national field consultant, in these tests, white applicants with less qualified applications were given higher loan quotes than minority testers with stronger applications. White testers often received additional aid from lenders. "Often white testers were coached into ways in which they could improve their financial situation and break into a higher price range and home price," Freiberg points out. "And that coaching didn't often occur with the testers they were matched with."
When you are given a mortgage by a lender, it is difficult to determine whether the lender is offering you harsher terms based on protected features. This is why testing conducted by organizations such as FHJC is critical. "Most people would not know that they were discriminated against," Freiberg said.
What to do if you face discrimination. If you believe you have experienced discrimination, you should: Document everything. Keep all correspondence with your lender, and record any phone calls you have with them (if permitted in your state). Your attorney may require this as evidence in the future. File a complaint. You might also contact a local fair housing organization for assistance. They can assist you in filing a complaint with the appropriate government agencies and may be able to support you if you decide to pursue legal action. They can also send testers to the lender to collect evidence of discriminatory behavior.
"The burden of enforcing the fair housing and fair lending laws should not fall exclusively on the victims of discrimination," according to Freiberg. "We all have a responsibility to clean up this problem."
If you want to report housing discrimination, contact HUD or the Consumer Financial Protection Bureau. Most states offer a department where you can register a fair housing complaint.
Seek Legal Advice
Finally, get an attorney involved. They can assist you in determining whether discrimination has occurred and guiding you through the legal process to address it.
Mortgage lending discrimination resources and support If you are being discriminated against, there are various resources available to you, including:
Government Agencies
The CFPB and HUD can help with discrimination on a national scale. Individual states have agencies that can assist. See below to find one in your state.
Non-Profit Organizations
Many non-profits also provide assistance with mortgage discrimination, including: National Fair Housing Alliance Resources include HOPE Fair Housing Center, Alliance for Housing Justice, North Texas Fair Housing Center, Mercy Housing, National Disability Rights Network, and legal aid programs.
If you need help seeking legal aid, look to: Legal Services Corporation - Law Help American Bar Association, American Civil Liberties Union.
Mortgage lending discrimination prevention and advocacy The most effective approach to avoid mortgage discrimination is to educate yourself. Understand the mortgage procedure and the criteria you must satisfy to qualify, as well as the red flags to look out for along the process. You should also report any acts of discrimination and take action against any discriminatory rules you encounter while applying for a mortgage. This can avoid future discrimination against others. Finally, consider participating in the cause. Several organizations push for fair lending policies and housing change. Find one near you and contribute to more equal housing in your town.
