Mortgage discrimination is prohibited by both the Fair Housing Act and the Equal Credit Opportunity Act.
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Mortgage discrimination is often subtle and difficult to spot.
A non-minority applicant getting approved for a higher loan amount in spite of being less qualified than a minority applicant is an example of mortgage discrimination.
Shopping around with multiple lenders and comparing offers can make it easier to see if you’ve been discriminated against.
Homeownership is an important part of wealth-building for many Americans, which is what makes discrimination during the homebuying and mortgage application processes so harmful.
Mortgage discrimination is a type of housing discrimination, and it can often be hard to spot. To protect yourself, it’s important to know what constitutes mortgage discrimination, what it typically looks like, and what you can do if you think you’ve experienced discrimination.
What is mortgage discrimination?
If a lender is making decisions about its mortgage approvals or policies based on certain protected characteristics, that’s considered mortgage discrimination.
Mortgage discrimination is prohibited by both the Fair Housing Act and the Equal Credit Opportunity Act (ECOA).
According to the Fair Housing Act, discrimination based on the following characteristics is prohibited:
Race or colorReligionSex (including gender, gender identity, sexual orientation, and sexual harassment)Familial statusNational originDisability
The ECOA prohibits also discrimination based on:
Race or colorNational originReligionSex (including gender identity and sexual orientation)Marital statusAge (provided the applicant has the capacity to enter a contract)Applicant’s receipt of income from a public assistance programApplicant’s exercise, in good faith, of any right under the Consumer Credit Protection Act.
Types of mortgage discrimination
Mortgage discrimination doesn’t just happen when someone is explicitly denied a loan because they’re a member of a specific group — it’s often more subtle.
Discriminatory policies can fall into one of two categories: disparate impact, or disparate treatment.
With disparate impact, a lender may have the same policies for all borrowers, but they impact certain borrowers differently than others. An example of this would be if a lender looks at gross income for all its applicants, but doesn’t treat taxable income differently than non-taxable income. This could disproportionately impact those who receive non-taxable income, such as disabled individuals or the elderly, and lead them to qualify for less than what they actually can afford.
With disparate treatment, borrowers are treated differently based on protected characteristics.
This can be overt, such as a lender stating that they don’t make loans to certain groups or offering different terms for applicants based on protected classes. It can also be more subtle, and only recognizable when comparing similar applicants who have different outcomes.
An example of this would be if two applicants had negative information on their credit reports, but the lender decides to work with one applicant, who isn’t a minority, while denying the other, who is a minority.
How to recognize mortgage discrimination
Spotting mortgage discrimination can be difficult, because it often becomes obvious only when comparing similar applications that had different outcomes.
Fair housing groups like the Fair Housing Justice Center (FHJC), a nonprofit organization in New York that works to eliminate housing discrimination, send testers to lenders suspected of engaging in mortgage discrimination. These testers pose as potential loan applicants and gather data on how the lender treats different types of applicants.
Fred Freiberg, FHJC’s national field consultant, says that in these tests they’ve seen white applicants with less qualified applications receive quotes for larger loan amounts than minority testers who had stronger applications. White testers often received more assistance from lenders as well.
“Often white testers were coached into ways in which they could improve their financial situation and break into a higher price range and home price,” Freiberg says. “And that coaching didn’t often occur with the testers they were matched with.”
When you’re offered a mortgage by a lender, it’s difficult to know if the lender is offering you worse terms based on protected characteristics. This is why testing done by groups like FHJC is so important.
“Most people would not know that they were discriminated against,” Freiberg says.
While individuals can’t conduct these kinds of tests on their own, you can do some of your own comparisons by getting preapproved with a few different lenders. When you shop around with multiple lenders, you can see if any of the terms you were offered by one lender seem unusual compared to the other preapprovals you received.
“But in most cases folks aren’t doing that, they’re going and meeting with one person,” says Shaye Belcon, FHJC’s national projects and investigations coordinator. “So they don’t really have a good idea necessarily about whether they were discriminated against.”
It’s also a good idea to have a basic understanding of what lenders look for when approving an applicant for a mortgage. If you’re getting a conventional loan, you’ll typically need a credit score of at least 620, a debt-to-income ratio (DTI) below 50%, and a down payment of at least 3%.
If you’ve been denied a mortgage and aren’t sure why, you have a right to ask. Acceptable reasons for denying a mortgage application include a too-high DTI or negative information in your credit report.
Where is discrimination likely to occur in the mortgage lending process?
Mortgage discrimination can occur at any point during the lending process, including after you’ve closed on your loan. According to the US Department of Housing and Urban Development (HUD), the federal agency that enforces the Fair Housing Act, discrimination can occur:
During approvals and denials of loan applicationsIn the setting of the terms of the loan (including the interest rate, points, fees, and other costs)In the lender’s advertisingWith mortgage broker servicesIn property appraisalsIn servicingWhen receiving loan modification assistanceIn the process of obtaining homeowners insurance
How to report mortgage discrimination
If you have a feeling you might have been discriminated against, you can reach out to a local fair housing organization to get assistance. They can help you file a complaint with the right government agencies, and may be able to assist you if you decide to take legal action. They can also send testers to the lender to try to gather evidence of discriminatory practices.
“The burden of enforcing the fair housing and fair lending laws should not fall exclusively on the victims of discrimination,” Freiberg says. “We all have a responsibility to clean up this problem.”
If you want to report housing discrimination, you can file a complaint with HUD or the Consumer Financial Protection Bureau. Most states also have a department where you can file fair housing complaints.
StateWhere to report housing discriminationAlabamaUS Department of Housing and Urban Development*AlaskaAlaska State Commission for Human RightsArizonaCivil Rights Division of the Arizona Attorney General’s OfficeArkansasArkansas Fair Housing CommissionCaliforniaCalifornia Department of Fair Employment and HousingColoradoColorado Civil Rights DivisionConnecticutConnecticut Commission on Human Rights and OpportunitiesDelawareDelaware Division of Human RelationsWashington, DCDistrict of Columbia Office of Human RightsFloridaFlorida Commission on Human RelationsGeorgiaGeorgia Commission on Equal OpportunityHawaiiHawaii Civil Rights CommissionIdahoIdaho Human Rights CommissionIllinoisIllinois Department of Human RightsIndianaIndiana Civil Rights CommissionIowaIowa Civil Rights CommissionKansasKansas Housing Resources CorporationKentuckyKentucky Commission on Human RightsLouisianaLouisiana Attorney General’s OfficeMaineMaine Human Rights CommissionMarylandMaryland Commission on Civil RightsMassachusettsMassachusetts Commission Against DiscriminationMichiganMichigan Department of Civil RightsMinnesotaMinnesota Housing Finance AgencyMississippiUS Department of Housing and Urban Development*MissouriMissouri Commission on Human RightsMontanaMontana Department of Labor and Industry Human Rights BureauNebraskaNebraska Equal Opportunity CommissionNevadaUS Department of Housing and Urban Development*New HampshireNew Hampshire Commission for Human RightsNew JerseyNew Jersey Division on Civil RightsNew MexicoNew Mexico Mortgage Finance AuthorityNew YorkNew York Division of Human RightsNorth CarolinaNorth Carolina Office of Administrative Hearings Civil Rights DivisionNorth DakotaNorth Dakota Department of Labor and Human RightsOhioOhio Civil Rights CommissionOklahomaOklahoma Office of Civil Rights EnforcementOregonOregon Bureau of Labor and IndustriesPennsylvaniaPennsylvania Human Relations CommissionRhode IslandRhode Island Commission for Human RightsSouth CarolinaSouth Carolina Human Affairs CommissionSouth DakotaSouth Dakota Housing Development AuthorityTennesseeTennessee Human Rights CommissionTexasTexas Workforce CommissionUtahUtah Labor Commission Antidiscrimination and Labor DivisionVermontVermont Human Rights CommissionVirginiaVirginia Department of Professional and Occupational Regulation Fair Housing OfficeWashingtonWashington Human Rights CommissionWest VirginiaWest Virginia Human Rights CommissionWisconsinWisconsin Department of Workforce DevelopmentWyomingEqual Justice Wyoming
*Does not have state-associated fair housing assistance