After a number of complaints were filed, the U.S. Department of Housing and Urban Development (HUD) has launched an investigation to examine why 22 lenders failed to offer Federal Housing Administration (FHA) mortgages to borrowers that met the requirements.
HUD has received claims alleging lenders violated the Fair Housing Act by racial discriminating against Latinos and other minorities.
“By denying access to FHA loans to qualified, creditworthy individuals, without regard for the actual risk posed to the institution, lenders are discouraging the flow of credit and capital into working-class communities,” said David Berenbaum of the National Community Reinvestment Coalition (NCRC) which filed claims with HUD last week.
As part of a study, NCRC sent “secret shoppers” into banks to apply for mortgages. NCRC alleges banks turned down Latinos with credit scores as high as 640, though to be eligible for the loans, a borrower must have a credit score above 580 and have a 3.5 percent down payment (or a score above 500 and 10 percent down).
Agreeing with Berenbaum is John Taylor, NCRC CEO and president. “This decision is arbitrary, because the loans are 100 percent guaranteed, whether the borrower’s credit score is 580 or 780. That means the loans with lower credit scores don’t pose additional risk to the company, so there’s no legitimate business defense for this across-the-board practice.”