Office Hours with Professor Bill is a multimedia learning experience covering fundamental real estate concepts.
In Episode 9, Professor Bill responds to questions about:
- application of anti-discrimination practices;
- the Equal Credit Opportunity Act; and
- the Home Mortgage Disclosure Act.
Student: Do anti-discrimination practices only apply to the sale, purchase, or rental of property?
Discriminatory practices aren’t just limited to the sale and purchase of property, or the rental of a unit in a multi-family dwelling.
Anti-discrimination rules also apply to the world of real estate finance, specifically, lending.
Without a fair and balanced mortgage market, California borrowers do not have equal access to funds to purchase property, and this creates an unhealthy environment that limits sales and hurts everyone.
Student: What discrimination is prohibited under the Equal Credit Opportunity Act?
The federal Equal Credit Opportunity Act prohibits discrimination in lending based on:
- race
- color
- religion
- national origin
- sex
- marital status; or
- age (provided an individual is of legal age)
You’ll likely notice that many of these protected categories are the same protected categories that are afforded protection under fair housing laws.
Same general protected groups, just a different context: lending.
Student: Whom does the Equal Credit Opportunity Act apply to?
The anti-discrimination rules apply to institutional lenders, mortgage brokers, and others who make or arrange mortgages.
Discriminatory practices take many forms, including:
- treating minority mortgage applicants less favorably than non-minority applicants.
- placing additional burdens on minority applicants.
- requiring a spouse’s signature on a mortgage application when an applicant qualifies for a mortgage individually.
- discouraging mortgage applicants based on their race, color, sex, etc.; and
- making inquiries into the marital status of mortgage applicants.
Discriminatory actions are rarely conducted overtly.
Rather, they are more subtle, like providing different treatment to a protected class of borrowers.
Student: Could you give me an example?
Consider a minority couple who applies for a mortgage to be insured by the Federal Housing Administration, or FHA. The funds will be used for the purchase of a residence.
The home the couple seeks to purchase is 75 miles from their place of work.
The couple intends to occupy the home as their principal residence and commute to work, which is, of course, not uncommon here in California.
The lender suspects the couple wants to purchase the home as an investment, and not to occupy it themselves.
Since the type of FHA insurance sought may only be used to purchase homes which the buyer will occupy, the lender denies the mortgage application.
The lender does not discuss with the couple whether they intend to occupy the home.
Also, the lender never suggests the couple can apply for a non-FHA mortgage.
Due to a mortgage contingency, the couple loses their right to buy the home and incurs expenses in the process.
Not a good day for the couple, right?
Here, the couple is able to recover their money losses from the lender under the Equal Credit Opportunity Act, since the lender’s denial of their mortgage application resulted from unlawful discrimination.
Student: What does this example illustrate?
Simply, lenders need to provide the same level of assistance to non-minority borrowers as minority borrowers.
In this instance, the lender may not unilaterally decide the couple did not intend to occupy the home without first discussing the couple’s intentions with them.
Also, even if the couple did not qualify for an FHA-insured mortgage, as a matter of professional practice, the lender needs to refer them to other forms of financing.
Student: Could you tell me more about The Home Mortgage Disclosure Act?
The Home Mortgage Disclosure Act, or HMDA, is another federal law that seeks to prevent lending discrimination and unlawful redlining practices.
Remember, redlining is the failure to provide financing in certain communities based on the demographics of that community.
HMDA requires large lenders to disclose home mortgage origination information to the public when the borrower is seeking a residential or home improvement mortgage.
