Based on complaints filed by the National Community Reinvestment Coalition (NCRC), the U.S. Department of Housing and Urban Development (HUD) is launching multiple investigations to determine whether 22 banks and lenders discriminated against African American and Latino borrowers.
The NCRC alleges the mortgage originators denied Federal Housing Administration (FHA)-insured loans to African Americans and Latinos with credit scores as high as 640. FHA guidelines allow mortgages to borrowers with credit scores above 580, provided the borrowers have down payments equaling 3.5% of the loan amount, or above 500, provided the borrowers have down payments equaling 10% of the loan amount.
‘The decision by some banks to not follow the FHA's policy is cutting qualified borrowers off from accessing credit, and in doing so, causing harm to their ability to prosper, build wealth and for our economy to grow,’ says John Taylor, president and CEO of the NCRC. ‘And this decision is arbitrary, because the loans are 100 percent guaranteed, whether the borrower's credit score is 580 or 780. That means the loans with lower credit scores don't pose additional risk to the company, so there's no legitimate business defense for this across-the-board practice.’
The NCRC says it conducted ‘mystery shopping’ tests on the nation's top FHA-approved lenders. Of all the lenders tested, 32, or 65%, refused to consider consumers with credit scores below 620. An additional 11, or 22%, refused to extend credit to consumers with credit scores below 640. Only five lenders, or 10%, had policies in place that served consumers with credit scores of 580 and higher.
The NCRC believes the policies of the 22 lenders violate the Fair Housing Act, the Equal Credit Opportunity Act and the Community Reinvestment Act. A complete list of the lenders against which the NCRC filed complaints can be found here.