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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Content Archived: January 20, 2009