Reports of mortgage discrimination in the banking system absorb made headlines recently, following a December 2016 announcement that Wells Fargo would pay $35 million to settle legal claims stemming from allegations of racial bias. 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 had wrongfully discriminated against Hispanic domestic buyers in South Carolina. (For more, see CFPB Targets Discriminatory Lending Practices.)
Now yet another major financial institution is in the news over claims of discrimination. In mid-January JP Morgan Chase & Co. agreed to pay $55 million to the U.S. Department of Justice following accusations that the bank discriminated against minority borrowers by allowing third-party mortgage brokers to charge them more for domestic mortgages. African-Americans were penalized the most, with those buyers paying more than $1,000 additional on average for a loan. For those who absorb domestic ownership in their sights, the message is clear: Buyer beware.
Mortgage Discrimination Defined
Mortgage discrimination can select different forms, but in general it refers to practices or policies that allow homebuyers to be penalized because of race, religion, sex, ethnicity or other protected characteristics. This type of discrimination is prohibited under federal law by the Equal Credit Opportunity Act (ECOA) and the impartial Housing Act (FHA).
The former forbids credit discrimination on the basis of:
- National Origin
- Marital Status
- Receipt of Public Assistance
Under the ECOA a creditor can interrogate you for this information but can’t utilize it against you to deny you credit or establish the terms of a loan. The FHA bans discrimination on those same grounds in real estate transactions, including mortgage loan approvals.
Besides denying you outright for a mortgage, lenders are also barred from discouraging you from applying for a loan or charging you more based on one of the factors listed previously. Those practices are what triggered discrimination claims against both Chase and Bank of America.
Avoiding Mortgage Discrimination
whether you’re gearing up to buy a domestic, it’s well-known to know which signs may indicate that a mortgage lender is attempting to discriminate against you. Some may be subtle, while others are more overt. The following examples are potential red flags to watch out for:
— Your mortgage lender tries to discourage you from taking on a larger mortgage, even whether you qualify for one.
— Your lender seems unusually interested in the details of your current neighborhood. This could be a marker of a practice known as redlining, which involves discriminating against buyers from poorer areas.
— The lender tries to steer you toward a different loan from the one in which you’re interested.
— You’re charged a higher interest rate, even though other lenders absorb told you that may qualify for a lower one.
— You’re charged what seem to be excessive fees for the loan without the lender offering a clear explanation as to what they’re for.
— A lender refuses to give you a mortgage, but doesn’t advise 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 domestic you’d like to buy won’t appraise for the amount you want to borrow before the appraisal is even total.
Defending yourself against mortgage discrimination means doing some legwork beforehand. First, pull your credit reports from every bit of three of the major credit reporting bureaus: Equifax, Experian and TransUnion. Review your reports to get certain there are no errors or discrepancies, then sail on to checking your credit score.
maintain in intellect that whether you’re checking 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 opinion to check your scores, however, as this can give you a baseline estimate of where your credit stands in case a mortgage lender denies you and cites unpleasant credit as the reason.
Taking the time to compare your borrowing options from different lenders is also a sound strategy. This way you can earn an opinion of which types of loans you may qualify for, as well as the price range you’re looking at for the going interest rate.
Be certain you’re not being steered to a subprime mortgage even though you qualify for better rates and terms (see Subprime Lending: Helping Hand or Underhanded?). Mortgages achieve involve certain fees, but get certain the ones they propose for your loan aren’t excessive: Watch Out for ‘Junk’ Mortgage Fees lists some red flags.
What domestic Buyers Can achieve whether They’re Denied a Mortgage
Buyers absorb a number of options for dealing with suspected mortgage discrimination. The first is to simply complain to the lender. That alone may be enough to trigger a moment glimpse at your application to see whether you were denied a loan unfairly or charged more than you should absorb been.
whether that’s not effective you could reach out to your state attorney general’s office to see whether the lender has violated any state laws on credit discrimination. You can also file complaints with the Consumer Finance Protection Bureau and the U.S. Department of Housing and Urban Development (HUD). The final – and most meaningful – step is suing the lender in federal court. That may seem extreme, but as the judgment against JP Morgan Chase & Co. shows, it’s one way to earn results.
The Bottom Line
Mortgage discrimination can affect virtually anyone. The lawsuits against Chase and Bank of America propose that federal regulators absorb been committed to curbing these abusive practices. Knowing what to be on the lookout for as you open the domestic-buying process can get it easier to find the right lender and lock in a loan with impartial terms.