Mortgage discrimination is against the law. That’s important to know if you’re thinking about applying for a mortgage to buy, refinance, or make improvements to your home.
If you’re in the market for a mortgage, the Federal Trade Commission recommends you research the different types of mortgages and available rates, as well as laws that protect you from discrimination. Here’s some information to help you get started.
Two federal laws, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA), offer protections against discrimination.
The ECOA forbids credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or whether you receive income from a public assistance program. Creditors may ask you for most of this information in certain situations, but they may not use it as a reason to deny you credit or to set the terms of your credit. They are never allowed to ask your religion. Everyone who participates in the decision to grant credit or in setting the terms of that credit, including real estate brokers who arrange financing, must comply with the ECOA.
The FHA forbids discrimination in all aspects of residential real-estate related transactions, including:
- making loans to buy, build, repair, or improve a place to live;
- selling, brokering, or appraising residential real estate; and
- selling or renting a place to live
The FHA also forbids discrimination based on race, color, religion, sex, national origin, handicaps, or familial status. That’s defined as children under 18 living with a parent or legal guardian, pregnant women, and people securing custody of children under 18.
If you’re shopping for a mortgage, lenders must:
- consider reliable public assistance income the same way as other income.
- consider reliable income from part-time employment, Social Security, pensions, and annuities.
- consider reliable alimony, child support, or separate maintenance payments, if you choose to provide this information. A lender may ask for proof that you receive this income consistently.
- accept someone other than your spouse as a co-signer if a co-signer is needed. If you own the property with your spouse, he or she may be asked to sign documents that permit you to mortgage the property.
And must not:
- discourage you from applying for a mortgage or reject your application because of your race, color, religion, national origin, sex, marital status, or age, or because you get public assistance.
- consider your sex, race, or national origin, although you will be asked to disclose this information voluntarily to help federal agencies enforce anti-discrimination laws. However, a creditor may consider your immigration status and whether you have the right to remain in the country long enough to repay the debt.
- impose different terms or conditions on a loan — like a higher interest rate or larger down payment — based on your sex, race, or other forbidden factors.
- discourage you from buying because of the racial make-up of the neighborhood where you want to live or ask about your plans for having a family, although they can ask questions about expenses related to your dependents.
- require a co-signer if you meet the lender’s requirements.
Not everyone who applies for a mortgage will get one. Potential creditors are entitled to use factors like your income, expenses, debts, and credit history to evaluate your application for a mortgage. You can strengthen your application by taking some basic steps to make sure it gets full consideration.
1. Before you apply for a mortgage, get a copy of your credit report. A credit report includes information on where you live, how you pay your bills, and whether you’ve been sued or arrested, or have filed for bankruptcy. National consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that, in turn, use it to evaluate your applications for credit, insurance, employment, or renting a home. The Fair Credit Reporting Act (FCRA) requires each of the three nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. To order your report, visit annualcreditreport.com or call 1-877-322-8228.
2. Read your report to make sure the information in it is accurate and up-to-date. Credit reports sometimes include inaccurate information: for example, accounts that aren’t yours or paid accounts that might be inaccurately reported as unpaid. If you find errors, dispute them with the consumer reporting company involved and tell the lender about the dispute.
3. Give the lender any information that supports your application. For example, steady employment is important to many lenders. If you’ve recently changed jobs but have been steadily employed in the same field for several years, include that information on your application. If you’ve had problems paying bills in the past because of a job layoff or high medical expenses, write a letter to the lender explaining the causes of your past credit problems. If you ask lenders to consider this information, they must do so.
Consider shopping with several lenders to compare the fees they charge. When comparing costs, remember to look at all fees charged on your loan, as well as the interest rate.
Some lenders may try to charge some people more than others for the same loan product offered at the same time. Charges might include higher interest rates, higher lender origination fees and points, and/or higher broker origination fees and points.
Ask the loan officer or broker you are dealing with if the rate you’re being quoted is the lowest offered that day. The loan officer or broker probably is basing the offer on a list of mortgage rates issued by the lender. Ask to see the list; it’s called a rate sheet. Regardless of whether you are allowed to see this internal company document, if you suspect you’re not being offered the lowest rates available, consider negotiating for a lower rate or going to another lender or broker.
Negotiating is acceptable, and part of the process. Many of the fees for your loan, like origination, application, and processing fees, may be negotiable. Ask your loan officer or broker to explain each of the fees on your loan and whether there’s flexibility on the amounts.
If your application is denied, the lender must give you specific reasons — or tell you that you have the right to ask for the reasons. You have the right to:
- find out whether your loan is approved within 30 days of submitting your completed application. If your application is rejected, the lender must tell you in writing.
- specific reasons why your application was rejected. The lender must give you the specific reason for the rejection or tell you that you have the right to learn the reason if you ask within 60 days. An acceptable reason might be “your income was too low” or “you haven’t been employed long enough.” An unacceptable reason might be “you didn’t meet our minimum standards.” That’s not specific enough information.
- learn the specific reason why you were offered less favorable terms than you applied for, but only if you reject these terms. For example, if the lender offers you a smaller mortgage or a higher interest rate, you have the right to know why — as long as you don’t accept the lender’s counter offer.
- review the property appraisal from the lender. Mortgage applications may be turned down because of low appraisals. Check that the appraisal has accurate information and determine whether the appraiser considered illegal factors, like the racial composition of the neighborhood.
The lender may have rejected your application because of negative information in your credit report. If so, the lender has to tell you that, and give you the name, address, and phone number of the consumer reporting company that provided the information. You can get a free copy of that report from the consumer reporting company if you ask for it within 60 days. If your credit report has inaccurate information, the consumer reporting company is required to investigate items that you dispute. The companies that supply inaccurate information to the consumer reporting company also must reinvestigate the items you dispute. If you dispute the consumer reporting company’s account even after the reinvestigation, make sure that your credit report includes your summary of the problem.
Take action if you think you’ve been discriminated against.
- Complain to the lender. Sometimes you can persuade the lender to reconsider your application.
- Check with your state Attorney General’s office to see if the creditor violated state laws: Many states have their own equal credit opportunity laws.
- Consider suing the lender in federal district court. If you win, you can recover your actual damages and be awarded punitive damages if the court finds that the lender’s conduct was willful. You also may recover reasonable lawyers’ fees and court costs. Or you might consider finding other people with the same claim, and get together to file a class action suit.
- Report any violations to the appropriate government agency. If your mortgage application is denied, the lender must give you the name and address of the agency to contact.
You can file a complaint regarding a violation of the ECOA with the Consumer Financial Protection Bureau. You can file a complaint regarding a violation of the FHA with the U.S. Department of Housing and Urban Development (HUD).
For ECOA violations:
Consumer Financial Protection Bureau
For FHA violations:
U.S. Department of Housing and Urban Development (HUD)
1-800-669-9777; TDD: 1-800-927-9275
For details about the Fair Housing Act, contact the Office of Fair Housing and Equal Opportunity.
You have one year to file a complaint with HUD, but you should file as soon as possible. Your complaint to HUD should include your name and address, the name and address of the person or company you are complaining about; the address or some other way to identify the housing involved; a short description of the facts that make you think your rights were violated; and the dates of the violation you are alleging. HUD will let you know when it receives your complaint. HUD also usually notifies the alleged violator of your complaint and allows them to submit an answer; offers you and the alleged violator the chance to resolve your complaint voluntarily through a conciliation process; investigates your complaint and determines whether there is reason to believe the FHA has been violated; and lets you know if it cannot finish an investigation within 100 days of receiving your complaint.