What is Mortgage Discrimination?
Mortgage Discrimination Definition
Mortgage discrimination or mortgage lending discrimination is the practice of banks, governments, or other lending institutions denying loans to one or more groups of people primarily based on race, ethnic origin, sex, or religion.
Recognizing Mortgage Discrimination
Mortgage Discrimination can be hard to identify due to the nature of loan practices and applications. However, there are a few common characteristics that can help identify it:
- 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 in.
- The lender tries to influence your decision to take 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 offered a low-interest rate.
- You are asked to pay too many fees for the loan and no explanation is given.
- You are pressured to agree to the lender’s terms without reviewing them.
Mortgage Discrimination Summary
The term Mortgage Discrimination is the act of differing banks, governments, and other forms of lenders denying loans for different mortgages. For these types of lenders to be known as completing discriminatory acts, banks, government agencies, or other lends have to deny services on one of the following: the basis of their race, ethnicity, gender, or religion.
One major element that is still a dream to achieve in America is owning one’s home in a neighborhood of choice. When someone owns their home, it makes the homeowner feel special. They have control of where they are living and are putting something towards increasing their livelihood and strengthening their own neighborhoods and communities. However, there have been cases where lenders, appraisers, insurance brokers, bankers, and government employees discriminated against buyers during the homebuying process.
Whenever it comes to discriminating during the mortgage lending process, there are two major distinctions: different treatment and disparate impact. In reading over these differing measurement strategies of discrimination, the distinction must be made between the two to form strategies to fight them. Differential treatment discrimination occurs whenever borrowers are qualified for a specific loan on a mortgage, but they are treated differently. One example is when ethnic minority applicants get discouraged or rejected from applying for a loan after a caucasian family with the same qualifications is approved. Disparate treatment discrimination happens when mortgage loan applicants who apply for a new home are denied because the lender can use the denial as their form of necessity. One way this happens is when lenders will not allow mortgages to be applied for and approved even when the borrowers look perfect on paper. For example, if two couples with the same credit scores and borrowing limits apply for a mortgage, and one is a heterosexual couple and one is gay or lesbian, but the heterosexual couple is approved and the queer couple is denied.
The variety of reasons for lenders to discriminate against borrowers is one of the reasons that the Fair Housing Act was passed in 1968. The Fair Housing Act (FHA) is supposed to ensure that those applying for mortgages or renting will not be discriminated against for their race, religion, color, or national origin. There are plenty of ways to report housing discrimination, but the primary way to do it online is to fill out the form on the Fair Housing Foundation website. Doing this will help ensure that housing discrimination can be reported and that it will not happen again in the future.
Redlining
What Is Redlining?
Sometimes a form of mortgage discrimination, redlining is the refusal to provide either a loan or insurance to someone because they live in an area deemed a poor financial risk. Yet redlining is often broader than just loans and property insurance; it is more about intentionally not investing in “less desirable” areas or those with “high-risk demographics,” and there are multiple forms. Redlining typically occurs in neighborhoods with a majority of African American and/or Latine residents; some examples include:
- Retail and Grocery Stores: retail and grocery stores refuse to put a store in certain locations;
- Liquorlining: neighborhoods with more liquor stores compared to other neighborhoods;
- Reverse Redlining: or raising of prices in neighborhoods with less competition and because of the ethnic identity of its residents;
- Brick and Mortar: retail –particularly taxi and delivery service companies–purposefully not serving certain neighborhoods based on assumptions about businesses and perceived crime in the area;
- Environmental Discrimination: certain neighborhoods' parks are smaller, less accessible, and of lower quality;
- Health Care: wealth allows individuals to live in neighborhoods with cleaner air, better grocery stores, pure water, and outdoor spaces that provide healthier living conditions.
The practice of redlining in the United States has helped create the Racial Wealth Gap between people of color and white Americans. It makes it difficult for anyone of color to get away from poverty. Redlining is also attributed to the decline of inner-city and ethnic minority enclaves and neighborhoods.
This video does a great job of explaining what Redlining is and why it matters: