Experience with REDlining

17 Replies

It isn't anything new and it has been well documented (whether you are aware of it or not). I'm curious to know if there are any personal experiences with redlining for those seeking conventional mortgages, especially when seeking investment properties. 

There was only one discussion post that even mentioned it. If it's real estate, it's relevant. 

https://www.pbs.org/newshour/show/struggle-for-bla...

we have to study this in all our license CRE I suspect it may happen but its probably pretty rare .. MLO's want to make money not discriminate because of certain class's.. that does not make them money

Hi @Travelle Mason ,

I think that Sen. Tim Scott is correct. Without DTI and FICO included, it's not possible to know if there's redlining occurring or, as the Senator suggests at 5:10, persons of color might be disproportionately negatively impacted by the way the FICO scoring algorithms and/or DTI income calculations work, which in turn causes FICO/DTI-based loan denials just as proportionately.

I'd tend to support including DTI and FICO data in the HMDA datasets used by academics and journalists, as suggested by Sen. Scott (who is of a political party that I tend to not support the candidates of, more than half of the time, if that matters to anyone).

For lenders doing the extra work to support the various additionally subsidized mortgage programs out there such as FNMA HR and FHLMC HP, the opposite of redlining is the current name of the game. 680 FICO scores are treated the same as 740 FICOs, PMI is discounted, and so on, in certain census tracts/neighborhoods. If one believes that one's socioeconomic/racial/etc background hurts credit scores, this will tend to disproportionately benefit those very same folks with what amounts to a ~60 point FICO bump if you're buying one of these census tracts/neighborhoods. Taking note of your location: Half of Alameda, most of Oakland, and almost all of San Leandro, are in such subsidized census tracts. Most of San Jose and San Francisco are not in such a census tracts/neighborhoods.

What I think drives the perception of redlining the most:

- Persons of color with similar experience/education/etc levels tend to earn less income than similarly situated/qualified white persons. This is a fact widely accepted by most persons, I think. Social scientists have done extensive blind "white name" v "black name" identical resume experiments "in the wild" with real life employers not knowing they are being experimented on, etc etc etc.

- Due to the recent history of the Great Recession, the one area where the mortgage industry is not budging a single inch is in giving loans out to families that it can't be verified 10 ways from Sunday to be able to make the payments. 

- Add those two things together, and guess what we might end up with...

... But I don't necessarily think the 3rd bullet point is a horrible thing, though the first is problematic. That old dead guy said "Tis better to have loved and lost, than to never have loved at all." I would argue that "Tis better to rent and not ever be foreclosed upon due to inability to make the mortgage payments, than to be a homeowner for 5 minutes and then get foreclosed upon and have a ruined life." 

The solution is probably to fix that first bullet point, the income disparity issue given similarly situated/qualified professionals, and not to set a bunch of families up for failure with mortgages that they cannot afford even after subsidizing the interest rate and PMI.

My $0.02.

This story is unbelievable, having been a Mortgage Loan Originator at both a small community bank and a large national lender I can say with great confidence that lenders take these Fair Housing laws quite seriously and the only color anyone sees is GREEN! You can NOT base a study and make assumptions like this without knowing the credit score and DTI. In this women's case a brand new collection will kill your score. The fix is you pay it off and wait. Mortgages are credit score driven now and Fannie Mae & Freddie Mac aren't making many exceptions, which is why she was able to get a loan with her partner who had the good score NOT because she was white. I like Senator Scott and I would agree with him about having the utility companies report to the credit bureaus but be careful what you wish for. I would disagree that the whole world needs to have access to everyone's credit score. In some cases FHA or USDA will accept non traditional trade lines but those better be perfect. Working in a small rural community that is 99% white, you run into the same issue. They don't borrow money in the traditional way, they don't have credit cards, they either pay cash or they don't buy it and unfortunately they do utilize all the Rent-to-Own places in town . In most cases you have to work with them awhile to get them to a point where they can borrow money for a house. It has absolutely nothing to do with the color of someone's skin, it has everything to do with following the guidelines. The HMDA reports set up by the genius's in DC don't give a clear picture as to why the loan was denied. The letter that goes out to the borrower and is usually kept at the lending institution will tell you why. This story was started with a conclusion and he did his best to find very weak data to support his beliefs. People don't Redline anymore, there's no money in it and the penalty for doing is too high and you will also lose your job if you get caught. Realtor's aren't even allowed to tell buyers what a good or bad neighborhood is, that's considered Redlining as well. If someone was from out of town and didn't know the area the best advice I could them was to find a neighborhood they liked and spend a couple hours sitting in their car and listen (it really only works in nice weather) but you can learn a lot about an area by listening to it. This kind of story is exactly what we don't need right now because it pits people against each other and it certainly doesn't help anyone. Are there prejudices out there, of course, but it's not only the color of someone's skin. My small community bank thought we were still living in the 1950's and they only wanted to do business with "important members of the community". They weren't even doing FHA or USDA loans until I got there and the arrogance of these people was shocking. My boss had been there 45 years and one day I had a couple come to see me about an FHA loan for the duplex they had been renting for 6 years. His comment to me after they left was he wondered if they were looking for the food stamp office instead. People are judged all the time by everyone and it's terrible that any of us would think we're better or somehow more sophisticated. But in this story they have it all wrong and we certainly don't need anymore hate. Sorry for the rant but this kind of thing really hacks me off

Originally posted by @Travelle Mason :

It isn't anything new and it has been well documented (whether you are aware of it or not). I'm curious to know if there are any personal experiences with redlining for those seeking conventional mortgages, especially when seeking investment properties. 

There was only one discussion post that even mentioned it. If it's real estate, it's relevant. 

https://www.pbs.org/newshour/show/struggle-for-bla...

 I can only speak from my personal experience buying real estate in four different markets in three different states using multiple lenders. 

I have never experienced this in any way. None of the lenders I have used cared about race. They were much more interested in my finances and credit worthiness. No one has ever steered me toward inferior loan products or tried to force me to buy in only certain areas. 

There are other factors involved that easily explain the situation. Lower incomes, higher debt to income ratios, worse credit, insufficient funds for down payment/closing costs, and more volatile employment histories, lack of qualified cosigners, etc. These are factors that effect all lower income communities regardless of race. 

Without looking at any of these factors and in an attempt to push a particular agenda, this article is very misleading. 

I think this is much more likely to be a problem at the agent level than at the lender level.  I absolutely see race issues in the market place, but most lenders are not meeting their clients in person.  They are talking to them on the phone, and pulling their credit....and their servicr is based on that FICO score.

Now agents who are meeting people in person, and spending time with people face to face run a much higher risk of their biases coming to the surface.

Oh wow! I woke up and I actually had some replies! I can't wait to dig into some of the commentary. 

As a loan officer / broker it makes absolutely no business sense to turn down anyone based on anything other than financial qualifications.  We all want to make money and help as many people as possible.  I have never experienced any kind of discrimination toward my clients from a lender, and if I did I certainly wouldn't want to do business with them.

From the PBS article, some things did sound suspicious, but many of the reasons that the applicant had difficulty made sense according to the guidelines.  If the income wasn't consistent, that would be an issue.  Maybe it declined from year to year.  Bringing on a co-signor with high debt is also not going to help you.  

The credit score may have dipped below the minimum for that particular bank or loan program, although any good loan officer will try to advise you or suggest ways to get your score up.  If there is no immediate solution, I would suggest trying in a few months to see if your score recovered.  Paying off a delinquent account typically won't help raise your score right away because the delinquency is still on your report.  If there is some way to remove the delinquency altogether (if it was reported in error) that would boost your score.  

Where it gets suspicious is bringing on another borrower with a higher credit score.  That shouldn't really help because the lowest middle score between the two borrowers will be used.  So if my middle score is a 600 and your middle score is 700, the lender still should be basing everything off of the 600 score.  If the lender is looking for a 620, that is going to be a problem.  There's no way to know what really happened without looking at the whole file.

I should add that redlining is discrimination based on the area where the property is located, not the individual borrower.

"Redlining is the practice of denying or limiting financial services to certain neighborhoods based on racial or ethnic composition without regard to the residents’ qualifications or creditworthiness."

Originally posted by @Stephanie Irto :

Where it gets suspicious is bringing on another borrower with a higher credit score.  That shouldn't really help because the lowest middle score between the two borrowers will be used.  So if my middle score is a 600 and your middle score is 700, the lender still should be basing everything off of the 600 score.  If the lender is looking for a 620, that is going to be a problem.  There's no way to know what really happened without looking at the whole file.

 A while back I did hear about a firm voluntarily doing blind phone call tests to ensure equal housing laws (spirit and letter) were being followed, and found that actors playing identical characters with a stereotypically white v black sounding names had things explained to them at vastly different levels of detail, with actors playing characters with 'white' names being given more tips, more detail, more options, on average, during that initial no paperwork phone call with the MLOs. They would toss a coin for if the 'white' or 'black' character would call first, then do a 2nd call 3 or 6 months later to the same MLO. There were no differences of note in terms of geography (which would have been redlining), but there was in helpfulness, options, detail, and tips.

This could explain why OP article borrower was under the impression that FICO scores were 'averaged' or something (an incredibly common thing for FTHB to think, unless/until a MLO takes the time to explain otherwise). I did get the impression that OP article subject person didn't seem as if anything was really explained to her, she was just along for the ride and trying to decipher things.

It is possible that these actors above were humans with internal biases and weren't 'fairly' playing their characters, however. I have no idea how you could control for that, unless it was a double-blind test where everyone involved doesn't know what variables are being tested.... it would probably be pretty dang obvious to the actors what the experiment is about, and out of work actors (who presumably aren't Tony-level or Academy Awards-level in their acting quite yet) have been known to appreciate, ahem, being 'dramatic' while in character.

When my sister and I were in the process of buying our first house everything was fine and dandy with the lender. We were preparing for a 30 yr fixed and all was going well. When we filled out the paper work indicating our race as Black/Hispanic, he then tried to persuade us to go to a 5 yr ARM. Fortunately, we knew better. However, whenever I am asked to identify race or ethnicity on applications, I now decline to do so. That said, in the years since, neither I nor my sister have had any issues getting a mortgage from any lender.

I first heard of this story on Democracy Now. I have always been a HUGE fan and supporter of that news program, but in listening to the broadcast, they did not deliver all the facts, which was disappointing and disconcerting. They did not disclose the debt to income ratio of of Farroul, her mother, or her partner. They only revealed the FICO score (707) of the partner, which while it is not bad, it is not great either. They mentioned Farroul's mothers ability to get loans for Farroul's and her siblings' education, which implies that while the mother may make a good salary in the education field, she may also be deeply in debt paying for her children's education too. 

The long and short of it is this was poor journalism. We cannot make a determination without all of the facts. Even the guy who did the analysis said he excluded debt to income ratio and FICO score, which are the two primary factors in lending. If I had a renter with high debt and a low FICO score, I would not rent to them regardless of their race or ethnicity. The same holds true for lenders.

I think there’s a bit of a misunderstanding here. The PBS story is more of a “local interest” part/single case of a larger study. Rachelle Faroul was just one example cited in the original study (https://www.revealnews.org/article/for-people-of-color-banks-are-shutting-the-door-to-homeownership/) that was based on a yearlong statistical analysis of 31 million records.

As far as people mentioning that they, personally, didn’t see it or do it, all I can say is that the plural of anecdote is not data. Oh, and the idea that people don’t redline because the penalty is too high, that’s honestly laughable. See: Wells Fargo and their constant stream of cartoonish schemes while they still continue to be massively profitable. And countless other banks and lenders post 2007/8/9 housing collapse. How many people lost their jobs, let alone went to jail?

Originally posted by @Josh Weber :

I think there’s a bit of a misunderstanding here. The PBS story is more of a “local interest” part/single case of a larger study. Rachelle Faroul was just one example cited in the original study (https://www.revealnews.org/article/for-people-of-color-banks-are-shutting-the-door-to-homeownership/) that was based on a yearlong statistical analysis of 31 million records.

As far as people mentioning that they, personally, didn’t see it or do it, all I can say is that the plural of anecdote is not data. Oh, and the idea that people don’t redline because the penalty is too high, that’s honestly laughable. See: Wells Fargo and their constant stream of cartoonish schemes while they still continue to be massively profitable. And countless other banks and lenders post 2007/8/9 housing collapse. How many people lost their jobs, let alone went to jail?

Thank you for posting that, much more insightful. 

From article:

 But that still wasn’t enough. When she tried again a year later, this time at Santander Bank, a Spanish firm with U.S. headquarters in Boston, the process dragged on for months. Her loan officer kept asking for new information, she said – or sometimes the same information again.

I've been in the position that lender was in. What was going on behind the curtains is that the LO was really really trying to find a way to make it work, but in the end couldn't find a way to help the borrower check all the right boxes. When that sort of thing drags on for months, the lender either ends up a hero or hated. A solid majority of the thank you cards in my office are from these sorts of cases. The lender going out of her way to try to find a way to make it work, rather than spending that same exact amount of time on the 5 other applicants with two years on the job as W2 employees with 20% down, isn't an example of redlining. I'd argue it's the opposite. 

Wayns-Thomas, who has been selling real estate for 30 years, said her black clients are treated differently by lenders.

“They may not like what happened between the last time you were working on this particular job to this one. They may see there was a gap,” she said. “I have seen situations where they’ve asked people for the children’s birth records.”

The lender was trying to help your clients, Wayns-Thomas. Most lenders will count child support payments you make against you, but not give you credit for receipt of child support. If a lender is going the extra mile, however... 

- If the borrower pays child support but there are fewer than 10 payments left, the payments can be excluded from DTI in some cases. Birth cert is a reasonable way to document that the child is within 10 months of turning 18 or 21 (or whatever the child support order says).

- Conversely if the borrower receives child support and wants to count that as income for DTI purposes, FNMA requires 3 future years of continuance (among other things). In other words, the child must be under 15. So, again, birth cert.

I can think of no circumstance where a lender would ask for a birth certificate wherein providing that birth certificate would hurt the borrowers chances of approval. Without it, the underwriter is just going to assume most conservative / worst case, so providing it will either have no impact or it'll help, but it will not hurt.

This sort of thing does not only impact persons of color. Want to see a pissed off entitled white woman? Ask her for a copy of her divorce decree from 10 years ago after the underwriter notices that her credit report lists 3 different last names as belonging to her SSN.

I appreciate all the replies this received. While somewhat one-sided, it is at least highlighting peoples own experiences or perceptions, whatever they might be. 

http://www.greenlining.org/

This post has been removed.

@Chris Mason I don’t want to give the impression that I’m saying this an industry-wide problem, or that every lender does this. Your anecdotes show that you seem to be a really honest, hardworking person. But, again, anecdotes are not data. And the data, in some of the specific areas cited in the study, overwhelmingly points to *something* going on, where, say, in a community that is pretty diverse that a bank will somehow wind up making 97% or even 99% of its loans to white people.

As to some of the people saying that it’s “poor journalism” (which is kind of funny because a research paper isn’t really journalism) or the study can’t be valid because they didn’t include credit scores, I find that really ironic since it’s the lenders themselves that don’t want that information made available even for academic purposes. Quoted from the paper:

Reveal’s analysis included all records publicly available under the Home Mortgage Disclosure Act, covering nearly every time an American tried to buy a home with a conventional mortgage in 2015 and 2016. It controlled for nine economic and social factors, including an applicant’s income, the amount of the loan, the ratio of the size of the loan to the applicant’s income and the type of lender, as well as the racial makeup and median income of the neighborhood where the person wanted to buy property.

Credit score was not included because that information is not publicly available. That’s because lenders have deflected attempts to force them to report that data to the government, arguing it would not be useful in identifying discrimination.

In an April policy paper, the American Bankers Association said reporting credit scores would be expensive and “cloud any focus” the disclosure law has in identifying discrimination. America’s largest bank, JPMorgan Chase & Co., has argued that the data should remain closed off even to academics, citing privacy concerns.

Here’s another link, from the paper, of specific instances of either highly suspect loan rejection rates, highly suspect drawn CRA areas, and mortgage lenders that have, let’s call it rather interesting loan approval demographic rates. Also of note, mortgage lenders are subject to CRA rules.

https://www.revealnews.org/article/8-lenders-that-arent-serving-people-of-color-for-home-loans/

Just to be clear, I’m not trying to argue that most lenders are good, honest people. I have no doubt about that. But you can agree with that while also admitting that there exists in the industry (much like in nearly every single other industry) not insignificant, and very impactful, cases of systemic bias and discrimination. 

As a dirt poor NY Immigrant that grew up from a 2 year old in the late 60s, living in the Alphabet City neighborhood in Manhattan, my experience by being beat up by virtually every kind of Gang, Hispanic, African Americans, Whites ( Irish and Italian gangs basically), etc.... embedded into me that Race plays both an obvious and subtle role in our City and I'm sure that extends throughout our Nation. NYC back then had neighborhoods that you really could not walk down if you were not the right color.

Today, NYC had changes a LOT, mostly because of Gentrification, but that's another story.

Either case, my childhood experiences told me that by the time I was ready to Invest after graduating College and working for a year, coincidentally as a Programmer like the main character, I knew I needed a White Male Partner to buy our first Investment Property.

That was back in 1997.

I can't prove that Partnering with White Males really helped, but I certainly felt that to ensure success, I really needed to start out that way.

In the past 5 years, Asians Males seem to have moved up the ladder, close to the top along with White Males. So I also have a number of Asian Americans as my Partners. That may be coincidental as well.

I also am close friends to some in the Real Estate Industry in Philly. I was told by the one friend that being an African America had a negative effect on his ability to List properties, even among African American Home Owners.

To this day I fully believe that my success in NYC considering my poor immigrant ethnicity is more about my Street Smarts than my Intellect.

I easily beat out my colleagues who worked with me at the best financial firms (including the Federal Reserve Bank of NY) in net worth, not because I am more intelligent than they are but because I used my street smarts to avoid external problems like racial disadvantages.

This could all be self-delusion on my part..... but that's the way I played it in the 20 years I have been Investing.

Now I'm on top of the food chain so much that I even have a wealth manager! I have a lot of people that never wanted to Partner with me seeing me as their potential future Partner.

There are still disadvantages I still have to overcome, such as now I am a Real Estate Broker and I need my Clients to not have pre-conceived notions of what I can do for them. One Client turned me down as their buyer Agent despite the fact that I have 20 years buying NYC properties AND I offered a rebate on my commission. I wasn't told what the real reason was, but I do have my suspicions!

Either case, I've had decades to hone my street smart skills and I'll overcome that as well.

I'm finishing up the Greenlining Institute report. This jumped out at me.

Study how CRA may incentivize displacement mortgages. Lenders, especially in Long Beach and Oakland, lend far more in low- to moderate-income census tracts than to low- to moderate-income borrowers. Given the rising housing costs in Oakland and Long Beach, this pattern indicates that middle and upper income borrowers are buying homes in low and moderate income neighborhoods, furthering gentrification. Such gentrification impacts potential low-income homeowners, current LMI homeowners, LMI rents, and local small businesses.

There's a data lag going on here. They are basing their census tract data on the 2010 census, but the income data on current income. For example, West Oakland is NOT a low income community any longer if you're looking at homebuyers in the area, but it registers as such if you look at 2010 census data. This is one of those neighborhoods where folks are apparently shocked that very few of the borrowers who get loans are "low to moderate income" because it's a "low to moderate income" census tract (according to 2010 census data)... and keep in mind this is the Bay Area so go ahead and bump those list prices by 10% to 30% to estimate actual sales prices. And this is today in the slow season, not the hot summer we have coming up...

I'd be surprised if it WASN'T the case that most "low to moderate income" folks aren't able to get mortgages here. If it WAS the case that lots of low and moderate income folks were getting mortgages at those price points, we'd be in trouble!

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