Diversity, equity, and inclusivity in the mortgage industry

Did you know that your clients are not all treated equally? When it comes specifically to applying for a mortgage, did you know that nationality and skin color could actually determine whether your clients are successful in securing a loan or not? If you weren’t aware, it turns out that people of color are 40-80% less likely to successfully apply for a mortgage nationwide than white applicants.

The Markup conducted a study in 2019 which discovered that non-white applicants were more likely to be denied home loans than their white counterparts bearing similar financial portfolios. When it comes to lending, the mortgage industry has been aware of racial disparities for years, yet even with this knowledge in hand and controlled processes implemented to avoid this issue, the bias persists.

The 2019 study involved a complex statistical analysis of 17 factors across over two million home purchase mortgage applications. The results revealed that Latino applicants faced a 40% chance of being turned down, Asian applicants a 50% chance, Native American 70%, and Black applicants 80% compared to White applicants with similar application data.

Nearly every case was paralleled with the only difference being the race of the applicants.

The secret bias hidden in mortgage-approval algorithms

One such case is that of Crystal Marie and Eskias McDaniels. They finally bought their dream home, a new four-bedroom house in Charlotte, N.C., and were ready to settle down as a family with their son, Nazret. They had saved a substantial amount to place as a downpayment, had excellent credit scores, had been paying a significantly higher monthly payment in rent for the past few years (so affordability was no issue), and both had six-figure salaries – mortgage prequalification was easy.

Excitement filled the air as they prepared to sign their mortgage papers on August 23rd, 2019, and they were ready to move in the very same day. Just two days before, Crystal Marie received a call: the deal was off.

After spending in excess of $6,000 in nonrefundable application and admin fees, the MLO explained that the application had been rejected by underwriters approximately 17 times. Apparently, the reason behind the rejection was Crystal Marie’s ‘contractor’ status, over ‘full-time employee’. This happened in spite of her boss vouching for the security of her position within the company and her ‘contractor’ colleagues all having secured a mortgage without issue.

Crystal Marie’s co-workers are white. She and Eskias are black.

“It seemed like it was getting rejected by an algorithm,” she said, “and then there was a person who could step in and decide to override that or not. I think it would be really naive for someone like myself to not consider that race played a role in the process”.

Working toward a more diverse and inclusive mortgage industry

Many are doing their part when it comes to making diversity and inclusion (D&I) a core focal point in the mortgage industry. The Association of Mortgage Intermediaries (AMI) launched a survey into diversity, equality and inclusion in the mortgage sector earlier this year. The study, operated by an independent research firm, searched for as many people as possible to complete a 15-minute anonymous survey in order to better understand what is happening.

AMI Chief Executive, Robert Sinclair, said at the time of data collection:  “This is a subject that evokes significant emotion and this is your chance to give us your view. We’re looking to understand how inclusive our industry is and whether we can do more to help firms achieve diversity of thought and an inclusive culture? If so, where do we start?”.

Results and findings are yet to be released, but this will be a good foundation for all MLOs and their partners to build upon and implement much-needed changes in the industry.

You may be wondering what exactly it is you can do to support the growth of D&I in the mortgage industry right now and ensure your clients and peers know it’s something we simply cannot tolerate anymore.

Start from within: A diverse and inclusive workplace

There are such a huge number of positive reasons to have a diverse and inclusive workforce in your company. Other than talent speaking for itself, regardless of race or skin color, you open up a range of dynamic practices by reaching out to wider pools of talent, which instantly puts you a step ahead of the competition. Your brand will reflect and be able to relate to all communities you work in, and finally, you will be able to create a more positive and engaging customer experience with a wider audience.

Help your customers nail the mortgage application process

Mortgage loan algorithm bias is a clear representation of systemic racism. However, increasing the number of homes owned by minority races is one step closer to closing the racial wealth gap. So, while you may not have lending algorithms in your control, as an MLO, you should support your clients – of any race – to do everything they can to secure a mortgage and gain their rung on the property ladder.

You need to put forward air-tight mortgage applications that are near impossible to reject. Lenders will find it much harder to deny a loan if the financial credentials submitted are solid. Help your customers improve their credit scores and debt-to-income ratios – nurture your client relationships and help prepare potential buyers for what lies ahead so you can improve approval rates, help close the wealth gap and support the journey towards a more diverse and inclusive industry.

“Diversity and Inclusion give way to two other words, ‘deliberate and intentional.’ Diversity isn’t accidental and being inclusive should be purposeful. It’s something you focus on. Now, first of all, it’s the right thing to do – there’s no question about that. But beyond the right thing to do, it’s good for business. And it’s good for homeownership.” – Christopher M. George, 2018 MBA Chairman-Elect and Diversity Committee Chairman Founder, President and CEO, CMG Financial.

Creating a more diverse mortgage industry is something we should all be working toward as professionals, and there is an enormous amount of research that proves newer generations won’t even associate with businesses and services that don’t promise, support and promote equality and diversity – make sure you don’t get left behind your competitors who do choose to advocate for important causes.

How do you support diversity in the mortgage industry and how would you like to see it evolve? Join the discussion below.