Finding the right home and looking for a mortgage lender to work with isn’t the easiest thing to do — but for the LGBTQ+ community and other minority groups, it can be even more challenging. Even with legal protections and anti-discrimination laws in place, lending discrimination is still a problem throughout the country.
Homeownership is a crucial way to build wealth and ensure safety, but homeownership rates do not represent the racial composition or sexual diversity of the United States, suggesting that not everyone has an equal opportunity to homeownership.
For example, despite the fact that Black people make up around 14% of the population in major urban areas, they only own 10% of the homes. LGBTQ+ homeownership rates trail their non-LGBT peers by 20 percentage points, and experts suggest that this cannot be fully explained by other demographic factors.
Being able to identify what mortgage discrimination is, finding LGTBQ+-friendly mortgage lenders, and handling discrimination if it arises will help make your home buying experience smoother.
What Is Lending Discrimination?
Lending discrimination is the unfair or exclusionary treatment of an individual or group during the mortgage lending process. This can be based on factors like gender identity, sexual orientation, race, national origin, etc.
Example of lending discrimination include:
Being denied a loan due to your sexuality
Being refused mortgage loans because of marital status or familial status
Receiving less favorable loan terms because of your identity
Being offered higher mortgage rates than other individuals or groups based on identity factors
History of Lending Discrimination
Discriminatory lending practices that target the LGBTQ+ community and other groups are not a new phenomenon and can be traced back through the 20th century.
This type of discrimination started with a concept called redlining. Redlining happened when banks, financial institutions, and urban planning sectors began color-coding city maps to distinguish areas that were “high risk” for mortgage lending. These “high-risk” areas were often defined based on immigrant status, race, or sexual orientation. As a result, predominantly Black, immigrant, or LGBTQ+ residents in redlined communities were barred from receiving mortgages or purchasing homes in certain areas.
Redlining was an official policy, supported by the National Housing Act of 1934. This act created the Federal Housing Administration (FHA) which still operates today.
Toward the latter half of the 20th century, things started to change. The Civil Rights Act of 1968 was pivotal in combating discrimination across the board and included the Fair Housing Act. This act made significant strides against lending discrimination, but the problem unfortunately still persists in some places. For example, during the mortgage crisis of the early 2000s, the LGBTQ+ community and other minority groups were more likely to be targeted by predatory lending and became more susceptible to foreclosures.
Recent cases demonstrate that despite race and sexuality being a prohibited factor in decisions for making loans, equal access is still a major issue. The Department of Justice forced Los-Angeles based City National Bank to pay $31 million last year after it found that Black and Latino applicants were treated differently than their peers. Wells Fargo was also fined for denying pricing exceptions to Black and female borrowers who should have had the same claim to discounts.
Types of Lending Discrimination
Overt Discrimination: This is the most obvious and blatant form of discrimination, characterized by outward mistreatment of LGBTQ+ borrowers and other groups. Some lenders may directly refuse to offer a mortgage because of sexuality, gender identity, or another protected classification. When discrimination is overt, the lender does not try to hide or deny the reason for the discrimination.
Disparate Treatment: In the case of disparate treatment, a lender might offer less favorable loan terms to an LGBTQ+ borrower despite their credit score and financial background. For example, banks might charge you a higher interest rate than someone with the same credit report metrics. This type of mistreatment is more challenging to prove than overt discrimination.
Disparate Impact: This type of discrimination happens when “neutral” lending policies disproportionately affect a specific group of people. Disparate impact policies may not intend to discriminate, but discrimination can still be identified through outcomes.
Legal Protections Against Lending Discrimination
The two federal laws that combat housing discrimination are the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). However, additional fair lending laws and state laws also help protect LGBTQ+ borrowers and those from other minority groups.
Fair Housing Act (FHA)
This act was established in 1968 and prohibits discrimination against people in housing-related transactions. This includes discrimination in mortgage approvals, interest rates, credit reports, etc. Lenders, creditors, and anyone else involved in the housing process cannot legally discriminate based on sexuality, gender, race, familial status, disability, or any other identifying factor.
Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act is one of the major consumer protection laws. This act is designed to protect consumers from discrimination in any industry that requires a line of credit. The law went into effect in 1974, making it illegal for any creditor, including mortgage companies, to discriminate against applicants based on protected characteristics.
ECOA covers a broad range of protected groups. In addition to race, gender, and sexuality, ECOA makes it illegal for you to be denied based on getting public assistance, such as Social Security, a disability monthly payment, unemployment, TANF, or SNAP.
While companies can consider income from things like child support and can ask about your dependents when doing a credit transaction, they are not allowed to ask questions about your family planning.
To help enforce this anti-discrimination law, ECOA also requires lenders to provide a valid reason when denying a line of credit. However, ECOA’s prohibition does not always mean that lenders will not provide less favorable terms to marginalized individuals.
Home Mortgage Disclosure Act (HMDA)
Congress enacted the Home Mortgage Disclosure Act in 1975. Originally enacted under the authority of Regulation C, it was transferred to the Consumer Financial Protection Bureau in 2011.
The HMDA requires financial institutions to maintain, report, and publicly disclose all loan level mortgage information. The point of disclosing this information is to show whether lenders are serving the housing needs of the communities they’re in. This helps public officials make policies and decisions surrounding housing-related activities.
Community Reinvestment Act (CRA)
The Community Reinvestment Act was implemented in 1977 and required the Federal Reserve and other federal banking regulators to encourage financial institutions to help communities meet their credit needs. This applies to all communities, especially low and moderate-income neighborhoods.
As one of the fair lending laws, the CRA was established to help prevent redlining throughout the country.
Lending Discrimination Statistics
Despite the progress the United States has made toward preventing lending discrimination, it’s still a major issue for the LGBTQ+ community and other marginalized groups and is very apparent through homeownership rates.
According to the National Association of Gay and Lesbian Real Estate Professionals’ 2021 homeownership survey, LGBTQ+ homeownership rates are below average. Only 49% of LGBTQ+ individuals own homes, which is lower than the national average of 65%.
Another study that showcases unethical and illegal lending practices comes from the University of Chicago. The study analyzed five million mortgage applications from same-sex co-applicants, who were less likely to be approved than heterosexual, white couples. Whether same-sex male or female applicants, they were 73% more likely to be denied.
Through the National Fair Housing Alliance (NFHA), applicants can submit formal complaints about lending discrimination. The NFHA received more than 33,000 lending complaints in 2022 alone, which is about 5% higher than the previous year. This number is large already, and it doesn’t include the thousands of discrimination complaints that go unreported. However, these complaints include discrimination for a wide variety of factors, not just LGBTQ+ discrimination.
A major sign of lending and credit discrimination is higher interest rates for marginalized groups. A research study from the National Bureau of Economic Research (NBER) showcases this. The study reports that Hispanic and Black borrowers paid 0.31% and 0.29% higher rates respectively than white borrowers with similar credit histories and financial backgrounds.
Transgender people often struggle even more significantly to become homeowners due to discrimination. Results from a national survey from the US Department of Housing and Urban Development (HUD) revealed that 19% of transgender individuals were refused a mortgage.
Protecting Yourself From Lending Discrimination
You can’t prevent mortgage discrimination, but there are ways you can protect yourself from having to deal with it. The fight against mortgage loan discrimination is ongoing, and being educated about it and what you can do is a step in the right direction.
Understanding mortgage approval guidelines is an important step to making sure you’re not being discriminated against or receiving disparate treatment. The main components that a mortgage lender will use to determine approval are:
Credit score
A person’s income
Debt-to-income ratio
Employment history
Credit history, such as bankruptcy
The amount they have for a down payment
Mortgage companies aren’t allowed to use prohibited factors like immigration status, gender, race, sexual preferences, and more to determine loan approval.
Knowing what they use to determine loan approval is important, but you need to be able to recognize the warning signs of lending discrimination. If you know the signs, you have the opportunity to avoid using that lender, request assistance, and more.
The warning signs include:
Offering higher loan interest rates than what’s advertised
Changing the advertised requirements to deter your business
Asking inappropriate questions regarding race, religion, sexual preferences, immigration status, or other questions irrelevant to your financial situation
Steering you toward high-cost loans even if you’re eligible for lower ones
When in doubt, you can always look for assistance from housing counseling and government agencies, many of which are free or low-cost to work with.
Taking Action as a Victim of Lending Discrimination
If you believe you’ve been a victim of lending discrimination, you don’t just have to ignore it and move on to another lender. Taking action is the best way to help yourself and continue to fight against discrimination and disparate treatment. Those who discriminate against hopeful homebuyers need to be held accountable.
One of the best things to do is file a complaint with a government agency:
Contact HUD: The Department of Housing and Urban Development is one of the main agencies that accept complaints related to the FHA. You can submit a complaint by mail, phone, or online. HUD will perform an investigation and, if they find evidence of discrimination, take action.
File a Complaint with the CFPB: The Consumer Financial Protection Bureau accepts complaints relating to mortgage brokers and lenders. You’ll need to file a complaint online, where you’ll make a statement and provide any evidence of discrimination.
Contact the Federal Trade Commission: In addition to the CFPB, the FTC also works to protect borrowers from discriminatory practices. Share any details you have regarding your denial and they will contact you for further details.
Contact State and Local Agencies: In addition to federal agencies, your area might have state and local agencies you can speak with. Search online and contact the appropriate offices to submit a local complaint. The state attorney general’s office is often an excellent resource if you can prove that the creditor violated state laws.
Whether or not you file a complaint, you can take legal action to help ensure you’re compensated for damages and prevent someone else from falling victim to discriminatory lender.
Options for legal action:
Non-Profit Support Organizations: There are several non-profit organizations that offer support and legal resources for victims of lending discrimination, including Lambda Legal and the National Fair Housing Alliance (NFHA).
Private Lawsuits: You have the option to file a lawsuit against the lender. You can do this in state or federal court to receive compensation and prevent others from a protected class from becoming victims. Private lawsuits tend to be expensive and can take a long time, but they might be worth it depending on your situation. If your case is successful, you could be awarded damages and receive compensation.
Class Action Lawsuits: In some instances, you might be able to file or join a class action suit. Class action suits occur when a group of people who have experienced a similar discrimination situation file a collective claim against one defendant. A joint effort can help amplify the significance of the case, which often leads to larger settlements and can encourage behavioral changes in the lender.
Buying a home should be an exciting time in your life. Whether you’re buying your first home or your second home, you deserve to be treated fairly by real estate professionals and mortgage lenders. Lending discrimination within the LGBTQ+ community is prevalent despite the efforts made to limit it.
The best thing you can do if you’re getting ready to buy a home is to look for a lender known for being LGBTQ+ friendly, like Pride Lending. Working with a lender who won’t discriminate against you will ensure you can enjoy the home-buying process as much as possible, even when it gets tedious. Our team is composed of allies and members of marginalized groups, including LGBTQ+ and BIPOC individuals.
It doesn’t matter if you’re looking for commercial or residential real estate — working with a mortgage company you can trust is important. We can help match you to our team members who meet your needs, as well as review the popular loan programs that might serve you best. This can include FHA, VA, USDA, conventional, and investment loans.
We’ll assist you in finding programs that meet your needs, such as local, state, and national down payment assistance resources that can come in the form of grants and loans. If you’re not able to provide 20% upfront to eliminate private mortgage insurance and secure the best rates, we’ll help you find options that only need 3% to 5% down.
If you’re looking for lender offers that don’t discriminate, contact Pride Lending today to learn how we can help you secure your new home with ease and allyship.
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