Standing in line at my bank today, I noticed a poster they had that stated that they don’t discriminate in housing based on race, gender, creed, etc. I’m assuming that this poster was federally required.
Anyway, the poster further deliniated ways in which housing discrimination has been known to take place, and in which they don’t participate.
One thing that they didn’t mention was a practice that I suppose some bigoted lender has tried at one time or another. Here’s how it goes:
Minority Applicant wants to buy a house on Adams Lane in the Morningwood subdivision. Morningwood is entirely white. Bigoted Lender offers Minority Applicant an inflated interest rate if he wants the property on Adams Lane (or doesn’t offer him a loan at all), but offers a favorable interest rate for property at another location.
Has this been known to go on?
What forms of discrimination in housing do go on, and manage to slip through legal loopholes?
It is illegal to offer a higher interest rate to minority applicants if they are comparable to white borrowers in all other lending criteria. It doesn’t really matter if the banker offers them a lower rate in a ghetto.
The instance of, for example, a black buyer being steered to a predominantly black neighborhood could happen in a couple of ways. The real estate agent may deliberately want to keep the neighborhoods segregated, or assume that the black family would want to live in a black neighborhood. Either way it is disrimination based on race, it’s just that the latter may feel more justifiable by the real estate agent.
I’m relatively sure that Mr. Bigoted Banker does not want all his federal funds and federally guaranteed loans terminated and placed with another bank, while he tries to defend himself against charges of violating the Civil Rights Act or one of the other statutes noted in the link.
To answer the OP’s question, Fear Itself seems to have found an example in federal guidelines, so I’d say it’s been tried.
I’ll bet the most popular form of housing discrimination is just old-fashioned redlining. Don’t show the houses to people you don’t want to buy them. The town I grew up in had a redline for Italians and Poles.
Real Estate Person Checking In: That is extremely illegal and would cause you all sorts of hassles with the Multiple Listing Service, the Board of REALTORS, the state Real Estate Commission and the Federal Government. In short, it isn’t worth it. I have been in real estate over 20 years, and I have NEVER heard of any agent not showing a house in any neighborhood based on anything but a client’s income. If they can afford it, we will show it to them.
If anyone has a signed contract on a property and is qualified for the mortgage, the bank cannot say “Sorry, we don’t like your ___________.” If it’s even suspected that a REALTOR and/or Bank is doing this, the government will be on their doorstep the next morning.
Discrimination in interest rates based on rates would certainly violate ECOA.
And this would be extremely easy to catch because lenders are required by HMDA to report loans to the FFIEC. Part of the report requires the race and rate to be reported. These are then analyzed to determine whether there is any variance in interest rate based on race.
We had a (bogus) discrimination claim here last year. The first thing HUD wanted to see were our HMDA reports.
Ughhh… We just got done with our audit a couple of months ago. This was our last chance before we got hit with (Ominous Voice) “Civil Monetary Penalties”. It wasn’t a case of not wanting to do it correctly, but more a matter of the evolution of our bank from small community to Super Community bank. We just didn’t hire the people with the knowledge untill it was almost too late.
As a banker, let me just say I HATE HMDA. So much work for nothing (in my mind)
Yeah, fellow lender here chiming in, HMDA absolutely blows. Not because I would like to discriminate against minorities, far from it. Our lending process is set up so that it is 100% impossible to overtly discriminate, as in your example, regardless of what HMDA wants.
However if I chose to do so, it would be VERY possible to discriminate against certain groups without coming right out and offering worse terms and conditions. HMDA does nothing to prevent this.
So from my point of view all HMDA does is create more bullshit hoops to jump through and, in and of itself doesn’t do a whole hell of a lot to prevent discrimination.
Agreed. Although it would probably become obvious from a statistical analysis of a lender’s HMDA reports. For instance, a lender that disciminated in a manner that discourage minorities from borrowing from that lender would have a larger number of denials or withdrawals for that minority group of applications than similar lenders in the area.
I’ll give you an example. Suppose a lender wanted to discriminate against a minority group. On FHA loans, the lender could simply apply the hard and fast underwriting guidelines (no foreclosures within the last two years, for instance). For non-minorities, they could use discretionary exceptions to these rules (the two-year rule can be waived if the applicant has a good excuse for the foreclosure, at least if the excuse suggests that the default was the result of non-repeating circumstances), while for minorities, the lender could ignore the exceptions.
If this were routinely done, regulators would eventually question the difference in denials and withdrawals. If it were more intermittent, it would be harder to detect.
This would show in the rate spread, “the difference between the loan’s annual percentage rate (APR) and the current rate on certain comparable Treasury securities,” which they are required by HMDA to report.
Not only do regulators scrutinize HMDA records, but the media and advocacy groups do too.
http://www.wjla.com/news/stories/0805/255613.html (noting that ecords from 25 of the nation’s largest lenders and found that even blacks with incomes above $100,000-a year were charged high rates more often than whites with incomes below $40,000.)
It discourages overt discrimination, and it provides a way for those enforcing discrimination laws to get a preliminary view of lending patterns, which may reveal discrimination. Is it perfect? No way. Does it create tons of additional work for honest, well-intentioned lenders? Absolutely.