Does your race or ethnicity affect the interest rate or fees you're quoted on a mortgage? Do mortgage brokers offer the same deals to African-American and Hispanic applicants with identical -- or superior -- incomes, credit scores and employment histories compared with white applicants?
Do they treat people of different racial backgrounds differently -- spending less time discussing loan options and features with minorities, and routinely pressing them to reveal credit problems and outstanding debts?
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 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 National Community Reinvestment Coalition with funding assistance from the federal Department of Housing and Urban Development between February 2004 and early this month.
The six markets investigated were Baltimore, Washington, Chicago, Los Angeles, St. Louis and Atlanta. In each area, African-American and Hispanic couples or individuals visited the same mortgage brokerages 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 Hispanic applicants had slightly higher incomes, credit scores and longer employment backgrounds than their paired white colleagues making separate applications at the same brokerages.
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 percent of the white shoppers, but only 31 percent 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 twice the number of loan options -- different rates, fees and structures -- than were presented to African-American and Hispanic shoppers, who were often steered toward high-cost subprime mortgages.
Brokers discussed fixed-rate first mortgages with 90 percent of the white applicants but 56 percent of the minority applicants.
Seven percent of white applicants were "referred up" -- told that they could get a better mortgage deal elsewhere -- but not one African-American or Hispanic shopper with superior credit profiles was told the same thing.
Nine percent of whites were pressed for details on possible credit problems, late payments, outstanding debts or foreclosures, compared with nearly 40 percent of all minority applicants.
Brokers spent more time discussing loan options with white applicants -- an average of 39 minutes -- than they did with African-American or Hispanic applicants, who got an average of 27 minutes.
In an interview, David Berenbaum, executive vice president of the NCRC, called the investigation results "deeply disturbing." As a result of the study, the NCRC 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-American borrowers to higher-cost subprime 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," said Berenbaum in testimony June 9 to a Federal Reserve fair-lending hearing in Philadelphia.
Tony Musgrave, general counsel for Allied, said the company had not received a copy of the complaint, and therefore could not comment on it. However, said Musgrave, "any such discriminatory practices would be an absolute violation of company policy."
In a recent column on legislation to expand Federal Housing Administration mortgages to more potential homebuyers, the maximum mortgage amount under the bill would be the median home price for any metropolitan area, but not to exceed the Fannie Mae-Freddie Mac limit, which is adjusted annually. The current limit is $417,000.