Mortgage discrimination: Does it still exist?

Yes, it does.

According to recent reports, "Wells Fargo would pay $35 million to settle legal claims stemming from allegations of racial bias."

Continue reading to discover more about this ugly truth of the mortgage industry.

What is mortgage discrimination?

Mortgage discrimination means denying home loan to individuals or a group of people on the basis of their race, religion, sex, or ethnic origin.

It is practiced by financial institutions like banks and other lending organizations. This kind of practice is banned under the federal law by the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA).

Protections under ECOA and FHA

Equal Credit Opportunity Act (ECOA) prohibits:

• Discrimination based on race, age, sex, nationality, or marital status, or whether or not someone receives income from a public assistance program while giving out a mortgage.
• Lenders to ask about the marital status of a candidate if he/she is applying for separate, unsecured credit, with one exception. However, they can ask about the marital status of the borrower only if he/she lives in a community property state.
• Lenders to ask the candidates whether or not they’re planning to have children or additional children. Nonetheless, creditors can ask the number, financial obligations, and ages of all the existing children.
• Lenders to reject daily sources of income such as welfare and Social Security payments, reliable veteran’s benefits, child support, alimony, etc.

Fair Housing Act (FHA) prevents:

• Renting and selling of a home to any individual because of his/her race, religion, color, sex, national origin, and familial status.
• Discrimination on the basis of color, race, sex, marital status, religion, and familial status while renting or selling a dwelling.
• Advertising the rental or sale of a residence based on preference, race, color, religion, sex, age, marital status, national origin, receipt of public assistance.

Besides denying for a mortgage directly, lenders are also not allowed to discourage you from applying for a loan.

Know more: Protection against mortgage discrimination

How to make a mortgage application stronger

Everyone doesn’t receive a home loan. If you’re a victim of mortgage lending discrimination, check out how you can make strong home loan application:

Pull out a copy of your credit report

A credit report contains important information (especially your financial details) about you such as whether or not you’ve arrested or sued, or have defaulted on your bill payments, or have filed a bankruptcy case, how you pay your bills, and where you live, which determines your creditworthiness. By knowing your credit history beforehand, you can be prepared against credit bullies.

You are entitled to get a free copy of your credit report from the three credit bureaus - Equifax, Experian, and the TransUnion, at your request, once a year. Or, you can call 1-877-322-8228 or visit annualcreditreport.com to get your credit report.

Dispute any negative information in your credit report

Anyone can make mistakes. But, mistakes in a credit report take a toll on your credit score, which in turn can hamper your creditworthiness. So, read your credit report carefully and dispute errors if any.

Help the lender with any useful information

You can strengthen your application by providing your lender with any information, which support your case. For instance, you’ve to prove that you have a steady employment. If you’re having difficulty in paying your bills, write a letter to your lender explaining your problems. In short, never hide any details (both negative and positive) from your lender and be honest.

What to do if your application gets rejected

If your mortgage application is denied, you have the right to:

1. Know whether or not your home loan got approved within 30 days of submitting the entire application.

   If your mortgage gets rejected, the lender should inform you in writing with proper reasons.

2. Learn the reason behind offering you less favorable terms than you applied for.

   For instance, if you were offered a small mortgage or a high-interest rate, you have the right to ask the reason behind it.

3. Analyze the property appraisal from the real estate appraiser.

   Low appraisals may turn down your home loan application. So, check out and correct any inaccurate information that may damage the appraisal.

How to recognize mortgage discrimination

The following signs are potential examples that you’re facing discrimination in the mortgage industry:

• Even if you have qualified for a larger mortgage, the lender discourages you from taking out the loan.
• Your lender is showing excessive and unusual interest in the details of the neighborhood you’re currently living.
• The lender tries to influence your decision of taking out the loan.
• Your application is rejected and the lender doesn’t tell you the reason.
• You are charged a high-interest rate even if other lenders have asked for a low-interest rate.
• You are asked to pay too many fees for the loan and not given an explanation about it.
• You are pressurized to agree to the lender’s terms without reviewing them.

What to do if you suspect housing discrimination

If you think you’ve been discriminated, you can:

• File a complaint with the Department of Housing and Urban Development (HUD) or file a lawsuit in the federal or state court.
• Check with your State Attorney General’s office whether or not the lender violated state laws.
• Report any breach of law to the correct government agency.

You can share your thoughts regarding mortgage discrimination with us in the comments below.

Read more: Need out of mortgage due to racial discrimination