New research from Marquette University found evidence of discrimination against African Americans in the market for mortgage loans.
The effect of being African American on getting a response from mortgage lenders is equivalent to the effect of having a credit score that is 71 points lower.
The paper’s authors wrote: “We find that Mortgage Loan Originators (MLOs), the primary contact person for a borrower looking to obtain a mortgage, are less likely to respond to inquiries from clients with African American names that they are to clients with white names. We also find that MLOs responding to inquiries from both races are more likely to write a preferential e-mail to white clients.”
MLOs are often the initial and primary contact person for borrowers hunting for a mortgage, and, as sales workers whose compensation is tied to performance, have some discretion over how they respond to customer questions. MLOs may suggest that a borrower attempt to improve their credit score before completing a loan application, or may encourage a borrower to act swiftly to take advantage of low interest rates. They may also present different fees or interest rates to borrowers, offer encouragement or discourage the borrower from moving forward with the loan, or offer other financial advice related to obtaining a mortgage, as the paper notes.
It’s important to note that the majority of MLOs do not discriminate based on race. But during this three-year study, the paper states, “1.9 percent of MLOs discriminate by not responding to inquiries from African Americans while responding to inquiries from white clients.”
The researchers conducted this study by sending emails via names associated with black Americans and white Americans. For instance, the African American names used included Jamal Washington, Jerome Jefferson, DaQuan Booker, Dashawn Banks. White names included Zachary Miller, Brendan Nelson, Spencer Miller.
What does this study mean for African American borrowers? “It means they’ll unfortunately have to work harder to get the information they want, like sending inquiries to two lenders rather than one,” says one of the study’s researchers, Andrew Hanson, an associate professor of economics at Marquette, in an interview with Digital Journal.
For MLOs, Hanson suggests they “take all their clients seriously, and try to work with as many clients as possible…It might be do them better to rethink their general rules of thumb when dealing with clients.”
A December study echoes Hanson’s work, when it was found that African-Americans and Hispanics are rejected at significantly higher rates for home loans than white mortgage applicants.
“It’s very discouraging,” said that study’s author, Jim Campen, economics professor emeritus at the University of Massachusetts Boston. “It’s all about the long legacy of historical discrimination.”
In 2012, in one of the largest fair-lending payouts in history, Wells Fargo agreed to spend at least $175 million to settle federal accusations that it steered black and Latino borrowers into high-cost loans and charged them excessive fees.