Mortgage firm sued over racial descrimination

August 29, 2012 at 11:42 am 1 comment

Back in April, the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of New York filed a lawsuit against GFI Mortgage Bankers Inc, one of the country’s largest mortgage firms operating in seven states, primarily in New York, New Jersey, and Florida. The complaint was that GFI was racially discriminating against borrowers, charging African American and Hispanic borrowers higher fees and interest rates on mortgage loans, compared to comparable white borrowers. GFI has now agreed to pay $3.56 million to settle the lawsuit and has agreed to revise its policies.

An analysis of the loans made by GFI from 2005 to 2009 showed that the interest rates were 19 to 41 basis points higher for African American borrowers and 20 to 23 basis points higher for Hispanic borrowers, as compared to white borrowers (one basis point is 0.01 percentage point). Here’s how the Department of Justice describes it:

For example, an African-American borrower who took out a home mortgage loan in 2007 paid on average approximately $7,500 more over the first four years of the loan than a similarly-situated white borrower.  For a Hispanic borrower, the difference was approximately $5,600 more over the first four years of the loan than a similarly-situated white borrower.  The disparities, based on race or national origin, are statistically significant, and are unrelated to credit risk or loan characteristic.

The problem of discrimination in mortgage lending is well documented. A report that we had previously blogged about from Reinvestment Partners and several other advocacy organizations illustrated the patterns of racial discrimination when it came to federally-backed loans.  Earlier this year, Bank of America also settled a lawsuit against its subsidiary, Countrywide, that had discriminated against people of color in its mortgage lending.

In a comment on the Bank of America case, the Economic Policy Institute makes the good point that the consequences of these unfair mortgage practices are far-reaching and far from resolved. Any compensation that these large firms can offer the people who were affected will only scratch the surface of the deep, systemic problems caused by their discriminatory practices:

Exploitative mortgage lending has led to an epidemic of foreclosures among African American and Hispanic homeowners, exacerbating racial segregation as displaced families relocate to more racially isolated neighborhoods or suffer homelessness. The $335 million that Bank of America will spend to compensate victims is insufficient to restore their access to homeownership markets and to middle-class neighborhoods. In consequence, it will also do little to address the comparatively poor educational outcomes of children who are now more likely to grow up in racially segregated communities, or the damage to learning that results when schooling has been disrupted by an unstable housing situation.

Entry filed under: Economy, Housing. Tags: , .

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