MCP Help Blog

Two large American lenders are being sued by the NAACP for allegedly discriminating in their lending practices. The two separate lawsuits filed in the U.S. District Court in California cite studies that indicate that some lenders’ policies treat borrowers of different races, well, differently. In fact, upper income black Americans are two times more likely to receive higher rate loans than lower income whites, according to the NAACP. The National Community Reinvestment Coalition’s most recent study concludes that there is discrimination against people of color in mortgage lending. And the Federal Reserve Board, U.S. Department of Housing and Urban Development, and the FDIC have all made similar claims.

How can this happen? Wouldn’t a lender or loan officer who wants to be successful offer the lowest rate possible in order to get more business? Economist Gary Becker agrees that market forces have improved the lending picture for minorities. His theory is that “the free market which relies on supply and demand and the efficiency of business will make discriminatory actions unprofitable for business and thus the free market will remove prejudice tastes for us.”

But studies show it’s still happening. And it may not even be intentional. HUD found that: “Good intentions on the part of lenders are not enough. Examination of the mortgage loan origination process from an individual lender’s perspective suggests that even among institutions with good intentions, and where loan officers take pride in working with borrowers who need additional help on loan applications, minority customers may not be receiving equal treatment.”

So, what’s a person (of any race) to do to get a competitive interest rate and a fair offer? Try letting Gary Becker’s free market work for you. In addition to whatever loan shopping you do offline, be sure to add some online comparison as well. Because a computer doesn’t know or care what you look like. Then put your loan agent to the test (see my earlier piece on finding the best loan officer). And that way you’ll know that whatever deal you select is fair.