How can racial discrimination in mortgage lending be prevented
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That is the thrust of a recent article by Diana Olick in CNBC, which she terms “An outrageous tale that reveals Black discrimination in the housing market.” Her information comes from Akili Akridge, a black applicant who “had all the right stats: a steady six-figure salary, an 800 FICO credit score, and 20% equity in a home.”
The major points of the story, as told to Olick by Akridge, are the following:
Looking to refinance, he entered his financial information in an online mortgage site.
The first two calls he received asked about his race and he replied that he was black. One of them turned him down on the nonsensical grounds that they did not make loans on townhouses, the second quoted a rate higher than the one he now has.
On the next two calls he received, he did not identify his race, and was offered loans at competitive rates by both.
Because the story was light on details, last week I wrote Olick the following questions:
1. Did the complainant disclose to you the names of the loan officers who rejected him, and/or the lenders who employ them? I ask this because it seems to me that the malefactors should be held to account, at least by disclosing who they are.
2. Did the complainant disclose the web site through which he contacted the lenders? I ask that because I have a multi-lender web site (www.mtgprofessor.com) in which built-in safeguards make the discrimination you describe impossible. I would be happy to describe how it works if you are interested.
Since I have received no reply from Olick, I decided that readers would be interested in how discrimination can be avoided. The applicant who comes to my web site for a loan provides the financial information that lenders require to qualify for the loan requested, and to price it. That information does NOT include the applicant’s race. If the applicant proceeds to contact one of the lenders, the loan officer assigned to him would know that the applicant met the qualification requirements, and that the applicant knew the price posted on that day.
The loan officer cannot refuse the loan on the grounds that it does not meet the lender’s property requirements. Those requirements are part of its qualification requirements that are posted on the site and known to the applicant. If the applicant wants a loan on a townhouse, for example, only lenders that make such loans would appear on the screen. Similarly, the loan officer cannot quote an inflated interest rate because the rate has been posted on the site and is known to the applicant.
Applicants using the site do not disclose their race until the loan officer takes the application. It would be extremely difficult for a biased loan officer to attempt to scuttle the deal at that point.
He can’t change the qualification requirement or the rate, those have already been set.
If he fabricates a rule and uses it as a ruse to reject the application, he must fill out a denial letter which sets out the specific reason for the denial. The letter must be provided to the applicant and is also available to the loan officer’s manager, whose salary and bonus are tied to the number of loans originated on his watch.
If despite all this an unjustified rejection happened anyway, the applicant can contact me as ombudsman to consumers who use the site.
Mortgage lenders who want to participate are invited to contact me at [email protected]
