What We Know About Mortgage
Lending Discrimination In America

Stage 4: Loan Administration

Even after a mortgage loan has been approved and issued, there is still room for potentially harmful discrimination on the basis of race and ethnicity. In particular, lenders can and do exercise considerable discretion about how to treat people who have missed one or more payments. They can accept penalties for several months, they can negotiate a repayment schedule to bring the borrower back up to date, or they can start foreclosure proceedings. There is no systematic research evidence on potential discrimination in loan administration. However, anecdotal evidence--as shown, for example, on the investigative reporting TV show 60 Minutes--suggests that at least some lenders take a harsher stance in foreclosure decisions against minority customers than against whites. In extreme cases, some lenders may even increase their profits by making loans that encourage defaults, initiating foreclosure proceedings as soon as payments are missed, and selling the property for a profit. This is clearly discriminatory behavior in itself. But if this practice occurs with any frequency, it also biases downward statistical estimates of discrimination in the initial mortgage lending decision, because it means that some lenders' acceptances of minority loans are made with the express intent to foreclose as soon as possible.

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