Investigation uncovers racial, ethnic bias in mortgage market
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.
