Lender Discrimination and Shopping for a Home Loan

Minorities get higher rates.

They add that the fact minorities are more likely to borrow from institutions specializing in high-priced loans could mean they are being steered to such lenders or that some lenders are unwilling or unable to serve minority neighborhoods.

This is called redlining. It is illegal. HUD really gets their panties in a bunch over it, too.



One thing that the article explicitly said: This does not include/compensate for credit scores. Working with people in the flesh, I have experienced the fact that there is a difference between how various groups handle credit. Often, the urban poor have some difficulty in meeting the requirements for open and existing lines of credit. Often, they are more poorly educated about their options or think they're a tough loan when they're not. This extends into the general population, although it's less prevalent. I have a friend I went to high school with. He and his wife make over $160,000 per year between them in very secure jobs they have held for over a decade each. Their credit score is about 760. The loan officer they were originally working with told them they were a tough loan to try and scare them into not shopping with anyone else. The reality is that the only question is what loan is best for them because they easily qualify for anything reasonable. This is far more common than most people think. The current standard is that if you have two or three open lines of credit and your credit score is above 640 - sixty plus points below national average - I can get 100 percent financing, and the possibility doesn't disappear completely until you go below 560 (whether it's smart is a question for the individual situation, but I can get a loan done if it is). With increasing equity, I can usually get a loan done even for credit scores below 500 (two hundred points below national average!). Now, the better your situation, the better your loan (e.g. rate, terms, closing costs, etc.) will be, but the question is not usually "Can I do a loan for these folks?" but "Can I find them better terms than anyone else?" and "Should I do this loan or is it really putting them in a worse situation than they're in?"



Quite often, the loan provider that urban poor go to is the one who advertises where they see it - basically, the lender who chases their business. They think "This guy wants my business. He does business with people like me all the time. He can get me the loan." The problem is that all too often, this loan provider has chosen this market precisely because the urban poor do not understand they've got other choices, and do not understand effective loan shopping, and so this loan provider makes six percent (the legal limit in California) on every loan plus kickbacks and arrangements under the table. They make more on one loan than I do on half a dozen for roughly the same amount of work, and the loan they do are not as good for their client as others that can easily be found.



Most people are better loan candidates than they think they are, and qualify for better loans than they think they do. It's more often the property they have chosen that creates an untouchable situation than the people themselves. Even then, there are usually options available.



(I got a ten minute lecture a few months back from a nice young couple telling me they "deserved" a rate of four to five percent on a 100% loan for a manufactured home sitting on a rented space. Well, if it had been on a regular house sitting on owned land I could have gotten them that loan on very desirable terms, but nobody does 100 percent on manufactured homes, and if there's no ownership interest in land involved then it's personal property, not real estate, and it becomes essentially a personal loan, for which the rates are much higher.)



So keep this in mind if and when you're in the market for a real estate loan, and shop hard. Remember that all of the times your credit is run in a two week period for mortgage purposes only counts as one inquiry, whether it is just once or whether it's five dozen times. A loan provider does not have to run credit themselves to get a quote, but the information must be complete, accurate, and in a form they can use.



Keep in mind that the loan market changes constantly. A quote that's good today almost certainly will not be good tomorrow. If it's not locked, it's not real, and a thirty day lock is not valid unless extended on the thirty-first day, for which you will pay an extension fee if necessary. So shop hard, with a real sense of urgency, get it done quick, and make your loan provider get it done quick. Any additional stress will more than pay for itself (and the longer the loan takes, the greater the opportunity for stress, too). Sight unseen, I can bet money that a loan done in thirty days from the first time you shop or lock is a better loan than the loan that takes sixty days or more.



Caveat Emptor

UPDATED here