Fair Lending: Mortgage Discrimination
Financing your new home can be a trying process and it can become even more difficult and complicated if you are the victim of mortgage discrimination. The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) were enacted to protect potential borrowers against discrimination when applying for a mortgage, a mortgage refinance, or a home equity line of credit.
What is mortgage discrimination?Mortgage discrimination is the practice of lending institutions denying loans to one or more groups of people primarily on the basis of race, ethnicity, sex, or religion. Mortgage discrimination in lending is prohibited by the FHA, and the Department of Housing and Urban Development’s (HUD’s) Office of Fair Housing and Equal Opportunity actively enforces these laws. The FHA makes it unlawful to engage in the following practices based on race, ethnicity, sex, religion, familial status, and/or disability:
- Refuse to make a mortgage loan or refinance a mortgage loan;
- Refuse to provide information regarding loans;
- Impose different terms or conditions on a loan, such as different interest rates, points, or fees;
- Discriminate in appraising property;
- Refuse to purchase a loan or set different terms or conditions for purchasing a loan; and
- Discriminate in providing other financial assistance for purchasing, constructing, improving, repairing, or maintaining a dwelling or other financial assistance secured by residential real estate.
What lenders must and must not doAccording to the FTC, when shopping for a mortgage, lenders must:
- Consider reliable public assistance income the same way as other income;
- Consider reliable income from part-time employment, Social Security, pensions, and annuities;
- Consider reliable alimony, child support, or separate maintenance payments, if you choose to provide this information. A lender may ask for proof that you receive this income consistently; and
- Accept someone other than your spouse as a co-signer if a co-signer is needed. If you own the property with your spouse, he or she may be asked to sign documents that permit you to mortgage the property.
A lender must not:- Discourage you from applying for a mortgage or reject your application because of your race, color, religion, national origin, sex, marital status, or age, or because you get public assistance;
- Consider your sex, race, or national origin; although you will be asked to disclose this information voluntarily to help federal agencies enforce anti-discrimination laws (notably, a creditor may consider your immigration status and whether you have the right to remain in the country long enough to repay the debt);
- Impose different terms or conditions on a loan — like a higher interest rate or larger down payment — based on your sex, race, or other forbidden factors;
- Discourage you from buying a home because of the racial make-up of the neighborhood where you want to live or ask about your plans for having a family (notably, however, they can ask questions about expenses related to your dependents); and/or
- Require a co-signer if you meet the lender’s loan requirements on your own.
Identifying and avoiding discriminationTo identify and potentially avoid being a victim of mortgage discrimination, potential borrowers should shop multiple lenders. Slight differences in rates from one lender to the next is normal and to be expected. However, if one lender quotes a rate that is significantly higher than your other quotes, or if your application is denied, you may be a victim of mortgage discrimination. Other forms of discrimination can be subtle, including discouraging you from taking on a larger mortgage, even if you qualify for one, or charging excessive fees for the loan without the lender offering a clear explanation as to what they are for.
Seek HelpIf you believe you have been discriminated against, you should first bring this to the attention of the lender. If the lender does not address your concerns, you should consider seeking out help from an attorney. An attorney will be able to assess the situation to determine whether you have a viable case for mortgage discrimination and/or violation of fair lending laws. An attorney can file a complaint on your behalf regarding a violation of the FHA with HUD.
If you decide to sue the lender, your attorney will represent your interests in court, where you can potentially recover your actual damages, as well as punitive damages in the event the court finds that the lender’s conduct was willful.
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