Discretionary Pricing, Mortgage Discrimination, and the Fair Housing Act

Abstract:     
Mortgage lending has always been the gateway to the American dream of homeownership, and, historically, has also been characterized by widespread discrimination against racial and ethnic minorities and their communities. Mortgage discrimination in the modern era has often been accomplished through a technique known as discretionary pricing, in which lenders allow their loan officers and brokers to increase borrowers’ costs from an objectively determined "par" rate. In the past decade alone, discretionary pricing has cost African-American and Latino homeowners billions of dollars in extra payments, which, in turn, has led these minorities to suffer higher foreclosure rates than whites and has reversed recent gains in their homeownership rates.

This Article explores the civil rights implications of discretionary pricing, which is now being challenged in a series of nationwide class-action lawsuits based primarily on the federal Fair Housing Act (FHA). This litigation involves some of today’s most challenging FHA issues, along with many difficult procedural questions. Indeed, one clear lesson demonstrated by our detailed discussion of these cases is that litigation is a chancy, albeit often necessary, technique for achieving fair-lending reform. In addition, the Article discusses, in a final section, non-litigation reforms that are also needed to insure that the home-finance industry provides a less discriminatory marketplace in the future.

Number of Pages in PDF File: 60

Keywords: discretionary pricing, mortgage discrimination, fair housing act

Accepted Paper Series