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Fair Housing and Lending

Discrimination in mortgage lending is prohibited by the federal Fair Housing Act. Legally, only an applicant's financial profile (such as credit rating) may factor into the good faith decision to extend a mortgage. The Act makes it unlawful to engage in the following practices on the basis of race, color, national origin, religion, sex, familial status or disability:

  • Refuse to make a mortgage loan
  • Refuse to provide information regarding loans
  • Impose different terms or conditions on a loan, such as different interest rates, points, or fees
  • Discriminate in appraising property
  • Refuse to purchase a loan or set different terms or conditions for purchasing a loan

Additional protected classes under the FHA include gender identity and sexual orientation; accordingly, bad faith discriminatory practices violate federal fair lending laws and preclude potential homeowners from equal opportunity to obtain financing. Due to the federal regulatory interest in protecting civil rights, any financial institutions, housing lenders, and home mortgage services who discriminate illegally may reported to the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Housing and Urban Development (HUD).

The following information provides a general overview of the main provisions of the Fair Housing Act. See Understanding Your Rights to Fair Lending and Mortgages and Your Rights to Fair Lending for more details.

Subprime Lending

Subprime loans play a significant role in today's mortgage lending market, making home ownership possible for many families who have blemished credit histories or who otherwise fail to qualify for prime, conventional loans. But, while the subprime mortgage market serves a legitimate role, these loans tend to cost more (due to higher interest rates) and sometimes have less advantageous terms than prime market loans. Additionally, subprime lenders are largely unregulated by the federal government. Data shows minorities are much more likely than others to get a subprime loan, and many of the borrowers who take out these loans could qualify for loans with better rates and terms. As such, many have expressed fair lending concerns about the subprime market.

One reason for concern in this area involves homebuyers in minority neighborhoods who fall victim to the illegal practice of redlining. This is an illegal lending practice in the residential real estate context, wherein a refinance or loan application is classified by home loans providers to be hazardous for investment. As a result of this discrimination and due to the limited availability of public assistance in these areas, many borrowers fall prey to subprime lenders who take advantage of them by offering anything but favorable terms during credit transactions, mortgage evaluation, and related transactions.

Predatory Lending

Some lenders, often referred to as predatory lenders, saddle borrowers with loans that come with outrageous terms and conditions, often through deception. Elderly women and minorities frequently report that they have been targeted, or preyed upon, by these lenders. The typical predatory loan is:

  1. In excess of those available to similarly situated borrowers from other lenders elsewhere in the lending market
  2. Not justified by the creditworthiness of the borrower or the risk of loss
  3. Secured by the borrower's home

Protect Your Rights

Due to prevalent discrimination in mortgage lending, it is important to ensure that any lender with whom you consult abides by the requirements of the law. Consider speaking with a real estate attorney if you have additional questions or would like to file a claim under the Fair Lending Act.

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