Talk:Mortgage discrimination

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[edit] Misleading

[edit] Lending practices - "Leading minority applicants to subprime loans"

"While the situation has somewhat improved, mortgage discrimination still occurs in another way. African Americans and other minorities are being disproportionately led to sub-prime mortgages with higher interest rates than their white counterparts."

This is misleading and highly biased.

  1. Loan applicants with good credit will not be offered subprime interest rates. Competition in the marketplace will ensure that any loan applicant has options when it comes to interest rates. I don't see any statistics supporting the section quoted. If such statistics do exist, are they adjusted for the credit rating of the observed applicants?
  2. Bank underwriters typically have no way of knowing whether a loan applicant is black or white. Although anti-discrimination legislation (ironically) requires that race be identified during the loan process, underwriters specifically need to ask for this information in order to get it.
  3. Many underwriters, loan officers, and other bank employees are black, particularly in poorer areas where discrimination is most often alleged to happen. It is highly doubtful that they would deny loans to black applicants or offer them subprime rates.
On the contrary, in case you are not aware as to comment #1, numerous reports were reported about not only black applicants, but also white applicants receiving subprime loans when their financial situation qualified them for prime loans (I'm assuming that, by "good," you're referring to FICO scores starting at 680 to 700). This phenomenon was covered by The Washington Post within the last 2-3 years. So, the first statement is not entirely true. This statement requires references (these references do exist, and will take a little time to find them) to support the statement.
As for comment #2, bank underwriters have more information at their disposal that the loan applicant realizes. Just for starters, a ZIP Code will provide a lot of information that is readily available about the demographics of the property location (the ZIP Code is included on the loan application). Anyone can find extensive information about the demographics of a ZIP Code (e.g., housing type, income, number of children, racial/gender statistics on ownership and community make-up, level of poverty, among other characteristics of the ZIP Code) simply by visiting the Census Bureau's web site. I'm sure that this same information is also available to commercial entities who use it for marketing purposes.
Back to comment #1 -- From my own personal experience, a mortgage broker tried to get away with steering our case (spouse and me) to subprime status two years ago for a 3-1 ARM at 9 percent, in addition to asking for 3 points (my own FICO score was beyond what I defined here as "good"). Also, a credit union where I "bank" (I bank at two of them) wanted to charge 7 percent with 2 points and PMI, and a mortgage company had the nerve to say that no bank would give us a prime loan, so we had few choices in the market (I wasn't buying it, and the mortgage was calling my husband to "work on me" to change my mind (i.e., be reasonable"). We walked away from those ridiculous propositions and financed somewhere else (my primary credit union, a direct lender that is a well-known, large credit union that also services its own loans) at 5-1/2 fixed for 30 years with no points, no PMI and with no problems. Just to let you know that many greedy, unscrupulous players had pervaded the entire financial industry and sucked in those who either didn't know any better or who were pressed for time during the height of the real estate boom.
Comment #3 -- Bank employees, regardless of their job duties and employment, merely do the loan processing work so that they can get paid. Therefore, the comment #3 does not make much sense since these employees have little input or influence on the bank's policies as to granting or denying mortgage loans. If anything, the financial interests of loan officers would be in conflict with the loan applicant, since loan officers in many cases receive bonuses or commissions based on the interest rate contracted for by the applicant. Ditto for mortgage brokers, but that's another situation altogether when one factors in yield spread premiums when the loan applicant agrees to take the higher rate -- that's how mortgage brokers typically earn money from the wholesale lender. '→Lwalt ♦ talk 11:42, 11 February 2008 (UTC)

[edit] Denial of loans

"African Americans and other minorities found it nearly impossible to secure mortgages for property located in redlined zones.[2] The systematic denial of loans was a major contributor to the urban decay that plagued many American cities during this time period. Minorities who tried to buy homes continued to face direct discrimination from lending institutions into the late 1990s. The disparities are not simply due to differences in creditworthiness.[3] With other factors held constant, rejection rates for Black and Hispanic applicants was about 1.6 times that for Whites in 1995[4]."

Banks lend money based on the appraised value of the collateral. When a property is thought to be declining in value or not worth the sale price (as is often the case in poorer areas), the bank may consider the risk too high and not lend to the applicant, regardless of the applicant's credit rating. Where is the acknowledgment of this fact?