FTC Alleges Mortgage Lender Discriminated Against Latino Borrowers

By TChris, Section Civil Liberties
Posted on Tue May 12, 2009 at 06:33:00 AM EST
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In a federal lawsuit filed last week in Los Angeles, the Federal Trade Commission accused Golden Empire Mortgage Inc. of violating the Equal Credit Opportunity Act by charging Latino borrowers higher interst rates and fees than it charged non-Latino whites.

The FTC alleged that the problem stemmed from Golden Empire's practice of giving its employees and branch managers wide leeway to make more money by charging "overages," higher fees and interest rates than the borrowers qualified for. The complaint alleged that the practice resulted in Hispanics being charged more because of their national origin.

In other words, loan officers had discretion to write loans at a higher interest rate or to charge greater up-front fees than the borrower's credit-worthiness and the lender's underwriting risk dictated. The loan officer would keep a piece of the excess charge as compensation. The FTC alleges that Golden Empire made no effort to monitor its loan officers to assure that they weren't targeting Latino borrowers when they used their discretion to charge higher interest rates and fees.

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The FTC's complaint (pdf) alleges:

From at least January 1, 2006 to at least December 31, 2006, Defendants charged Hispanic applicants, on average, higher prices for their mortgage loans than non-Hispanic white applicants. These price differentials were caused by Defendants' Discretionary Pticing Policy. Defendants' Discretionary Pricing Policy resulted in Hispanic applicants being charged higher overages because of their national origin. These disparities in the overages charged are substantial, statistically significant, and cannot be explained by factors related to underwriting risk or credit characteristics of the applicants.

If the suit is successful, Golden Empire will be enjoined from future violations of the Equal Credit Opportunity Act and will be ordered to repay the overcharged borrowers.

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FTC Alleges Mortgage Lender Discriminated Against Latino Borrowers | 5 comments (5 topical)

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Not surprised (none / 0) (#1)
by DancingOpossum on Tue May 12, 2009 at 10:05:47 AM EST

When I was in the biz I developed a small specialty in working with first-time Latino homebuyers. Some of them would show up with these insane loans they'd been approved for, invariably from some really shady fly-by-night operation (mortgage brokers don't need licenses and operate entirely free of most regulations, which partly explains the current mess). What was REALLY sad was that many of these brokers were Latino also, which is why the borrowers trusted them, and they had a hard time believing that the lily-white guy I used--a really decent, honest, loan officer, one of the best in the biz--would give them a better deal.

Oh, and most of them had excellent credit and an amazing amount of available down-payment cash, making the situation even more nuts.

I Heard A Similar Account... (none / 0) (#2)
by santarita on Tue May 12, 2009 at 10:37:21 AM EST

from a local real estate agent. Taking unfair advantage of people in home mortgages is especially reprehensible.

Although regulations and enforcement of regulations can't prevent all abuses, they can certainly help. Maybe disclosures of all commissions, fees, kickbacks, etc would help consumers understand that the mortgage broker, real estate agent, and/or lender has an inherent conflict of interest. Maybe disclosures of what standard FHA rates are compared to the rates offered would help prompt consumers to ask why they are not getting that rate or better or what they need to do to qualify for that rate.

In the meantime, prosecute the creeps.


The guy who had his mortgage broker biz (none / 0) (#4)
by sarcastic unnamed one on Tue May 12, 2009 at 11:01:32 AM EST

next door to my biz for three of the RE boom years is the perfect example of this:

What was REALLY sad was that many of these brokers were Latino also, which is why the [Latino] borrowers trusted them, and they had a hard time believing that the lily-white guy I used--a really decent, honest, loan officer, one of the best in the biz--would give them a better deal.

Of course, my neighbor always seemed to be able to get them a loan, even when the prospective borrower's SS# came back as "deceased"...

On the other hand, buying a loan is like buying a car, if you don't undertake the effort to shop for the best price, well, that's your call.


: I'm not sure what your point is... (none / 0) (#6)
by sarcastic unnamed one on Tue May 12, 2009 at 12:42:53 PM EST

Not surprising (none / 0) (#3)
by Dadler on Tue May 12, 2009 at 10:39:04 AM EST

I mean, every year some local TV station sends out a bunch of couples of different races to rend apartments, get loans, etc. And the results are always similar. As you can imagine, the white couple always has a harder time finding a place to live or getting a loan.

Ahem.