From the Los Angeles Times
NATION'S HOUSING Investigation uncovers racial, ethnic bias in mortgage market
By Kenneth R. Harney Washington Post Writers Group
June 18, 2006
WASHINGTON Does race or ethnicity affect the interest rate or fees a consumer is quoted on a mortgage? Do mortgage brokers offer the same deals to African American and Latino applicants with identical or superior incomes, credit scores and employment histories as they do to white applicants?
Federal law is absolutely clear on the subject: Race and ethnicity should have no bearing on the cost of your mortgage or the quality of service rendered to you as you shop for a loan. But a new two-year investigation in six metropolitan areas suggests that mortgage quotes are not always colorblind.
To the contrary, the study which used "paired" mystery shoppers documented what its sponsors call "pervasive discriminatory and predatory practices by mortgage brokers" in all six markets. The paired-testing was conducted by the National Community Reinvestment Coalition with funding assistance from the Department of Housing and Urban Development between February 2004 and early June 2006.
The six markets investigated were Baltimore, Washington, Chicago, Los Angeles, St. Louis and Atlanta. In each area, African American and Latino couples or individuals visited the same mortgage brokerage firms as white shoppers, all purporting to apply for home loans of similar amounts. All the applicants were assigned specific income, credit and employment profiles to present to loan officers. African American and Latino applicants had slightly higher incomes, credit scores and longer employment backgrounds than their paired white colleagues making separate applications at the same brokerage firms.
In this setting, the minority applicants should have received the same if not better mortgage quotes as the white testers. But instead, they often received less favorable treatment. For example:
• Brokers discussed loan fees with 74% of the white shoppers but only 31% of the minority shoppers. Yet loan fees points and a wide variety of other charges can add significantly to the out-of-pocket costs of one mortgage compared with another, even if the interest rates are the same.
• White applicants were presented with twice the number of loan options different rates, fees and structures than were African American and Latino shoppers, who were often steered toward high-cost sub-prime mortgages.
• Brokers discussed fixed-rate first mortgages with 90% of the white applicants but just 56% of the minority applicants.
• Only 9% of whites were pressed for details on possible credit problems, late payments, outstanding debts or prior foreclosures, compared with nearly 40% of all minority applicants.
In an interview, David Berenbaum, executive vice president of the National Community Reinvestment Coalition, called the investigation results "deeply disturbing." When minority applicants simply walked into a brokerage office, he said, sometimes "there appeared to be a working assumption" that they were not as good credit risks as whites.
As a result of the study, the coalition has begun filing a series of complaints with HUD's Office of Fair Housing and Equal Opportunity. The first complaint filed was against Allied Home Mortgage Capital Corp. of Houston, which has brokerage branch offices around the country.
The complaint alleges that Allied brokers are "quoting different interest rates and fees on the basis of race" and steering African Americans to higher-cost sub-prime mortgages even when they are fully qualified for lower-cost, prime-rate products.
Allied brokers "did not treat African American mortgage applicants as seriously as their white counterparts," Berenbaum said in testimony June 9 during a Federal Reserve fair-lending hearing in Philadelphia. They were given less time, less exposure to important loan alternatives and rates "all of which resulted in limited access to credit products."
Tony Musgrave, general counsel for Allied, said the company had not yet received a copy of the coalition's complaint and therefore could not comment on it. However, Musgrave said, "any such discriminatory practices would be an absolute violation of company policy."