Reports of mortgage discrimination in the banking system have recently made headlines after it was revealed in December 2016 that Wells Fargo would pay $35 million to settle legal claims arising from racial allegations. In January of this year, the U.S. Department of Housing and Urban Development (HUD) filed charges against Bank of America and two of its employees, alleging that the bank unjustly discriminated against Hispanic homebuyers in South Carolina. (For more, see CFPB Targets Discriminatory Lending Practices. )
Now another major financial institution is in the news about discrimination claims. In mid-January, JP Morgan Chase& declared itself Co. Willing to pay $55 million to the U.S. Department of Justice following allegations that the bank discriminated against minority borrowers by imposing higher mortgage rates on third-party mortgage brokers. African Americans were penalized the most, with these buyers spending an average of more than $1,000 on a loan. For those targeting homeownership, the message is clear: buyer beware.
Mortgage discrimination defined
Mortgage discrimination can take several forms, but generally refers to practices or policies that can penalize homebuyers based on race, religion, gender, ethnicity, or other protected characteristics. .. This type of discrimination is prohibited under federal law by the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA).
The former prohibits credit discrimination on the basis of:
- National origin
- Marital status
- Receipt of public assistance
Under the ECOA The creditor can ask you for this information, but cannot use it against you to deny you credit or set the terms of a loan. The FHA prohibits discrimination on the same grounds in real estate transactions, including mortgage loan approvals.
Aside from being turned down for a mortgage outright, lenders are also discouraged from keeping you from applying for a loan or charging you based on any of the factors listed above. These practices have sparked discrimination claims against Chase and Bank of America.
Avoid mortgage discrimination
If you're preparing to buy a home, it's important to know what signs might indicate that a mortgage lender is trying to discriminate against you. Some may be subtle, while others are more overt. The following examples are possible red flags to look out for:
– Your mortgage lender tries to discourage you from taking out a larger mortgage, even if you qualify for one.
– Your lender seems unusually interested in the details of your current neighborhood.This could be indicative of a practice known as redlining, which discriminates against buyers from poorer neighborhoods.
– The lender is trying to steer you to a different loan than you are interested in.
– You are charged a higher interest rate, even though other lenders have told you it could qualify for a lower rate.
– They are charged fees that represent overcharges for the loan without the lender offering a clear explanation of what it is for.
– A lender refuses to give you a mortgage, but doesn't tell you why.
– You feel pressured to agree to the lender's mortgage terms without having a chance to review them.
– The lender tells you that the home you want to buy will not appraise for the amount you want to borrow until the appraisal is completed.
Defending against mortgage discrimination means taking action up front. First, pull your credit reports from all three of the major credit reporting agencies: Equifax, Experian and TransUnion. Review your reports to make sure there are no errors or discrepancies, and then check your credit score.
Keep in mind that if you check your score through a free credit reporting service or your credit card company, it may be a different scoring model than the one your lender uses for mortgage decisions. It's still a smart idea to check your scores, as this can give you a baseline estimate of where your credit stands in case a mortgage lender denies you and cites bad credit as the reason.
Taking time to compare your loan options from different lenders is also a sound strategy. This will give you an idea of the types of loans you may qualify for, as well as the price range you are looking for in the current interest rate.
Make sure you're not being steered toward a subprime mortgage even though you qualify for better rates and terms (see Subprime Lending: Helping Hand or Underhanded? ). Mortgages include certain fees, but make sure that those they propose for your loan are not excessive: Watch out for "junk" Mortgage fees lists some red flags.
What homebuyers can do if they are denied a mortgage
Buyers have a range of options for dealing with alleged mortgage discrimination. The first is to simply complain to the lender. That alone may be enough to take a second look at your application to see if you were unfairly denied a loan or charged more than you should have been.
If this is not effective, you can contact your state attorney general's office to see if the lender violated state credit discrimination laws. You can also file complaints with the Consumer Financial Protection Bureau and the U.S. Department of Housing and Urban Development (HUD). The last – and most significant – step is suing the lender in federal court. This may seem extreme, but like the ruling against JP Morgan Chase& Co. Shows it is a way to get results.