Types of Fair Housing Act and Fair Lending Violations

Most common mortgage rights violations happen due to unfair lending practices and lending discrimination. These include violations of:

• Equal Credit Opportunity Act (ECOA)
  
• Home Mortgage Disclosure Act
  
• Consumer Credit Protection Act
  
• Fair Housing Act (FHA)
  

These laws protect mortgage consumers against discrimination in real estate-related transactions. But the Fair Housing Act is perhaps the best-known federal law that bans discrimination during a home purchase. The following information gives a general overview of the main provisions of the Fair Housing Act. See Mortgages and Your Rights to Fair Lending for more details.

How the Fair Housing Act Prohibits Discrimination

The Fair Housing Act bans discrimination in mortgage lending. 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 certain practices on the basis of race, color, and national origin. It also prohibits discrimination based on religion, sex, marital status, familial status, or disability. The law makes it illegal for a mortgage lender to:

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

More protected classes under the FHA include gender identity and sexual orientation. These bad faith discriminatory practices violate federal fair lending laws and prevent potential homeowners from equal opportunity to get financing.

Due to the federal regulatory interest in protecting civil rights, any financial institutions, housing lenders, and home mortgage lenders who discriminate illegally may get reported to the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Housing and Urban Development (HUD).

Subprime Lending

Subprime loans play a significant role in today's mortgage lending market. They make homeownership possible for many families with blemished credit histories or who otherwise fail to qualify for prime, conventional loans.

While the subprime mortgage market serves a legitimate role, these loans tend to:

• Cost more (due to higher interest rates)
  
• Have less advantageous terms than prime market loans
  

Subprime lenders are largely unregulated by the federal government. Data shows minorities are much more likely than others to get a subprime loan. Many of the borrowers who take out these loans could qualify for loans with better rates and terms. Because of this, many have expressed fair lending concerns about the subprime market.

Consider a borrower who makes $20 per hour with a credit score below 650. Not everyone has the luxury of earning the big bucks and touting a high score. Someone just starting the job market might have a starting wage and little to no credit history. Here, the borrower in our example might:

1. Be eligible for public assistance programs or other special loans that suit their circumstances
   
2. May be offered a high-interest "subprime" loan that is difficult to pay back
   

But a loan officer might illegally discriminate against such a borrower not on the basis of their humble financial circumstances, but rather because they are from a specific part of town. They may dismiss the borrower's more viable loan options to lock them into inferior, less forgiving loan terms.

Redlining

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 practice in the residential real estate context, where a refinance or loan application is classified by home loan providers as hazardous for investment.

As a result of this discrimination and due to the limited availability of public help in these areas, many borrowers fall prey to subprime lenders who take advantage of them. They may do so by offering anything but favorable terms during:

• Credit transactions
  
• Mortgage evaluation
  
• Related transactions
  

Predatory Lending

Predatory lenders saddle borrowers with loans that come with outrageous terms and conditions. This is often through deception. These lenders frequently target older women and minority populations. The typical predatory loan is:

1. Over 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
   

If You Suspect Discrimination

If you believe you're a victim of illegal housing discrimination, you can take action. The U.S. Department of Housing and Urban Development (HUD) has a page where you can file a government complaint. You may also report the matter to your state's attorney general or banking oversight agency. You may need to take legal action against housing discrimination in court.

A Lawyer Can Help You Sue

Due to prevalent discrimination in mortgage lending, it is important to ensure that your lender follows the law. Consider speaking with a real estate attorney if you have more questions or want to file a claim under the Fair Housing Act.