Smart Borrower Blog

HUD Launches Investigations Into Whether Or Not Lenders Discriminated Against Potential Borrowers

Dec 13th, 2010 @ 6:38 PM by Debbie Dragon

The US Department of Housing & Urban Development, otherwise known as HUD, has launched multiple investigations into whether or not accusations are true that mortgage lenders illegally denied loans to qualified African Americans and Latinos. This comes after the National Community Reinvestment Coalition or the NCRC filed complaints that included 22 different lenders. The lenders allegedly refused loans to FHA loan candidates whose credit scores were as high as 640, unfairly signaling out those of Latino and African American decent.

Lenders who offer FHA loans are given standards to follow when processing such loans. Current criteria allows those looking for loans to be qualified if their credit score falls above 580 with a 3.5% down payment. Additionally, if their credit score is between 500 and 579 they can qualify for an FHA backed loan in they are able to put down 10%.

Before the housing crisis hit and the economic meltdown began only about 3% of all new home loans in the country were backed by the FHA. Today, that figure has changed drastically and as many as 95% of all new loans are FHA guaranteed. For many Americans the dream of home ownership can only be achieved through the help of an FHA home loan.

“FHA is an important vehicle for Americans who want to purchase or refinance a home. We thank NCRC for bringing these complaints to HUD. For lenders to deny responsible home seekers this source of credit, without regard for their capacity to repay the loans, would raise serious fair housing concerns and, if proven, undermine our nation’s recovery efforts. HUD will take appropriate action against any lender found to be engaging in discriminatory practices,” said the Assistant Secretary for Fair Housing and Equal Opportunity John Trasviña.

NCRS President John Taylor also made sure that his opinion was known saying, “the decision by some banks to not follow the FHA’s policy is cutting qualified borrowers off from accessing credit, and in doing so, causing harm to their ability to prosper, build wealth and for our economy to grow.” He went on to say that because FHA loans are guaranteed, lenders are not at risk except under extreme measures like when fraud comes into play. “A lender is only at risk if they fraudulently or improperly originated the loan, against FHA’s underwriting criteria. As is the case across the secondary market, in that situation, the lender can be forced to buy back the bad loan,” he said.

About Debbie Dragon
Debbie Dragon is a full time freelance writer and the co-owner of

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