March 3, 2016 by Jake M.
Do mortgage lenders really discriminate against minority borrowers? If that be the case, how is that possible in this day in age of computerization and nearly automatic approvals?
A three-year study, led by Andrew Hanson, associate professor of economics at Marquette University, also had these specific questions and concerns. Based on the study’s findings, there was indeed some discrimination going on and it can be based on something as plain as the concept of perception.
During the study, they decided to use email correspondence to test mortgage loan originator (MLO) responses to the inquiries of borrowers. Hanson and his associates sent 2 identically written emails to more than 5,000 lenders in total. One of the emails was sent from a person with a ‘white’ sounding name and the other from a person with a ‘black’ sounding name.
Some examples of “white’ names included Maxwell Baker, Jake Kreuger, and Spencer Miller. Of those ‘black’ names, were examples such as Jamal Washington, DaQuan Brooker, and Terrel Banks. The names were gathered and categorized by the examination of New York City’s birth records. They then spent time determining which name most likely corresponded with a given race. Within these emails, they included the borrower’s low credit score, high credit score, and for some, no credit score whatsoever.
They sent these emails and took and recorded which of the MLO’s responded.
“Our results show that MLOs discriminate on the basis of race and treat clients differently by their reported credit score,” as stated in the conclusion. “We find that on net, 1.8% of MLOs discriminate by not responding to inquiries from African-Americans while responding to inquiries from white clients. We find larger net response differences across credit score types, with 8.5% of MLOs responding to clients in our high-credit-score group while not responding to clients who do not report a credit score.”
Shockingly, those managing the study concluded that MLO’s offered more details about loans and were more likely to send follow-ups to the ‘white’ borrowers. They seemed to put more effort in the correspondence. Also stated in the conclusion was the example that , “Overall, the effect of being African American on MLO response is roughly the equivalent to the effect of having a credit score that is 71 points lower.”
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