University Study Finds Racial Discrimination by Mortgage Loan Originators

EHOA new study by researchers at Marquette University in Milwaukee, Georgia State University, and Texas Christian University found that mortgage loan originators (MLOs) tended to discriminate against potential African American home buyers by not responding to requests for information or delaying their responses.

The research included about 10,000 email inquiries to mortgage loan originators that included names that were meant to hint of the potential borrower’s race. The results showed that some mortgage loan originators did not response to people with African American sounding names, others rejected applications outright, and others delayed their responses so that the potential borrower was apt to take their business elsewhere. The authors estimated that will all other factors being equal, the effect of being an African American borrower was equivalent to a credit score 71 points below the score of a White borrower.

Andrew Hanson, an associate professor of economics at Marquette University and the lead author of the study, stated that “we found that MLOs were more likely to send Whites the information they requested and more likely to give them advice or ‘coaching’ that may help them qualify for a mortgage. If African American borrowers are less likely to receive communication from a mortgage loan originator, or the MLO treats them differently when communication does occur, it makes submitting the loan application more difficult and the remainder of the home purchase more arduous.”

The study, “Discrimination in Mortgage Lending: Evidence from a Correspondence Experiment,” was published in the March 2016 issue of the Journal of Urban Economics. It may be accessed here.

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