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Mortgage lenders across the United States discriminate against African-Americans clients, according to a new study.
"It’s all about the long legacy of historical discrimination."
In an industry where credit scores are meant to determine eligibility, race was half as much a determining factor of the lender’s response to a loan request.
The study, published in the latest issue of the Journal of Urban Economics, emailed over 5,000 Mortgage Loan Originators—the first point of contact that can offer and negotiate loans—with white-sounding and Black-sounding names.
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Differences in the initial responses were significant enough to note consistent discrepancies: in the rate, length, content, tone and timing of the responses. The African American-sounding clients were repeatedly treated more poorly. On the whole, the treatment amounted to about 71 percent lower credit score.
In the speculative fever that caused the financial crisis of 2008, Black and Latino borrowers were charged higher fees for high-interest subprime loans, which they often could not afford. Wells Fargo and Bank of America, the main participants in this kind of discrimination, paid one of the most expensive settlements in history in 2012. When the market collapsed, people of color lost their houses at higher rates.
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Several studies in the past year show that they are also rejected from taking loans at a higher rate than white borrowers. In Boston, Black clients were rejected more than three times more than white clients, according to a University of Massachusetts Boston study. Baltimore has twice as many white borrowers as Black borrowers, despite having twice as many Black residents.
“It’s very discouraging," said Jim Campen, author of the Boston study. "It’s all about the long legacy of historical discrimination."
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