Federal Protections in the Mortgage Marketplace
Two federal laws, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA), offer protections against discrimination.
The ECOA forbids credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or whether you receive income from a public assistance program. Creditors may ask you for most of this information in certain situations, but they may not use it as a reason to deny you credit or to set the terms of your credit. They are never allowed to ask your religion. Everyone who participates in the decision to grant credit or in setting the terms of that credit, including real estate brokers who arrange financing, must comply with the ECOA.
The FHA forbids discrimination in all aspects of residential real-estate related transactions, including:
- making loans to buy, build, repair, or improve a place to live;
- selling, brokering, or appraising residential real estate; and
- selling or renting a place to live
The FHA also forbids discrimination based on race, color, religion, sex, national origin, handicaps, or familial status. That’s defined as children under 18 living with a parent or legal guardian, pregnant women, and people securing custody of children under 18.
Lender Do's and Don'ts
If you’re shopping for a mortgage, lenders must:
- consider reliable public assistance income the same way as other income.
- consider reliable income from part-time employment, Social Security, pensions, and annuities.
- consider reliable alimony, child support, or separate maintenance payments, if you choose to provide this information. A lender may ask for proof that you receive this income consistently.
- accept someone other than your spouse as a co-signer if a co-signer is needed. If you own the property with your spouse, he or she may be asked to sign documents that permit you to mortgage the property.
And must not:
- discourage you from applying for a mortgage or reject your application because of your race, color, religion, national origin, sex, marital status, or age, or because you get public assistance.
- consider your sex, race, or national origin, although you will be asked to disclose this information voluntarily to help federal agencies enforce anti-discrimination laws. However, a creditor may consider your immigration status and whether you have the right to remain in the country long enough to repay the debt.
- impose different terms or conditions on a loan — like a higher interest rate or larger down payment — based on your sex, race, or other forbidden factors.
- discourage you from buying because of the racial make-up of the neighborhood where you want to live or ask about your plans for having a family, although they can ask questions about expenses related to your dependents.
- require a co-signer if you meet the lender’s requirements.
Making Your Best Case
Not everyone who applies for a mortgage will get one. Potential creditors are entitled to use factors like your income, expenses, debts, and credit history to evaluate your application for a mortgage. You can strengthen your application by taking some basic steps to make sure it gets full consideration.
1. Before you apply for a mortgage, get a copy of your credit report. A credit report includes information on where you live, how you pay your bills, and whether you’ve been sued or arrested, or have filed for bankruptcy. National consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that, in turn, use it to evaluate your applications for credit, insurance, employment, or renting a home. The Fair Credit Reporting Act (FCRA) requires each of the three nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. To order your report, visit annualcreditreport.com or call 1-877-322-8228.
2. Read your report to make sure the information in it is accurate and up-to-date. Credit reports sometimes include inaccurate information: for example, accounts that aren’t yours or paid accounts that might be inaccurately reported as unpaid. If you find errors, dispute them with the consumer reporting company involved and tell the lender about the dispute.
3. Give the lender any information that supports your application. For example, steady employment is important to many lenders. If you’ve recently changed jobs but have been steadily employed in the same field for several years, include that information on your application. If you’ve had problems paying bills in the past because of a job layoff or high medical expenses, write a letter to the lender explaining the causes of your past credit problems. If you ask lenders to consider this information, they must do so.
Trying for the Best Loan Terms
Consider shopping with several lenders to compare the fees they charge. When comparing costs, remember to look at all fees charged on your loan, as well as the interest rate.
Some lenders may try to charge some people more than others for the same loan product offered at the same time. Charges might include higher interest rates, higher lender origination fees and points, and/or higher broker origination fees and points.
Ask the loan officer or broker you are dealing with if the rate you’re being quoted is the lowest offered that day. The loan officer or broker probably is basing the offer on a list of mortgage rates issued by the lender. Ask to see the list; it’s called a rate sheet. Regardless of whether you are allowed to see this internal company document, if you suspect you’re not being offered the lowest rates available, consider negotiating for a lower rate or going to another lender or broker.
Negotiating is acceptable, and part of the process. Many of the fees for your loan, like origination, application, and processing fees, may be negotiable. Ask your loan officer or broker to explain each of the fees on your loan and whether there’s flexibility on the amounts.
More about Mortgage Discrimination on consumer.ftc.gov.
How to File a Complaint with the Federal Trade Commission (FTC)