- I bought my house in 2021 when mortgage rates were at historic lows, but I was given a rate of 7.5%.
- Despite my excellent credit score and financial profile, it was even more difficult to refinance. I was refused twice.
- I eventually went to a brokerage with a more diverse staff and refinanced my house, but it shouldn’t be that way.
If you’re one of those people who thinks people of color are exaggerating when they say they can’t get a decent bank loan, I’m here to tell you: As a black consumer with a
credit score
financial discrimination is real.
Earlier this year, I decided to refinance the mortgage on my home in Atlanta. When I bought this house in 2021, I received a very high interest rate (7.5% when market rates were 2%), apparently because I am an entrepreneur.
My closing attorney at the time commented that this was one of the highest interest rates he had ever seen for a buyer with my profile. I have an 808 credit score, low debt ratio and healthy cash reserves. By traditional lending standards, I should have had no problem getting the best rate for a loan.
I told the lawyer who concluded that 7.5% was abusive, but since those were the only conditions I could obtain, I would refinance the loan later. I thought there was less discrimination in refinancing and that I would only have to deal with this situation temporarily.
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I had a lot of trouble trying to refinance
Boy I was wrong. The discrimination during the refinancing process was worse. It took Three trying to get approved – despite my strong finances and, in less than a year, a 30% increase in home equity.
The first lender turned me down when they discovered that, like thousands of businesses during the pandemic, I had taken out a PPP loan for my business. Even though the loan was cancelled, the mortgage lender said the fact that I got this loan in the first place was a sign of corporate mismanagement. I immediately wondered if the Los Angeles Lakers Where Harvard were denied a loan because of the PPP money they received. We both know the answer to this question.
I was turned down by the second lender after considering the additional income I earn as a thought leader, which includes speaking engagements, roles in television commercials, and obtaining scholarships. The company determined that because the values weren’t the same each month, I was too high a risk. Notice my main source of income was enough for approval. However, the underwriter said he just didn’t feel comfortable with me having additional income streams.
A conversation with a retired underwriter prompted me to change course
At this point, I was frustrated and discouraged. I am well aware of racial and gender bias in the financial industry and how discriminatory policies are embedded in the system. I fight against this prejudice every day at Enrich HERa fintech platform I founded in 2019 that makes access to capital easy and affordable for businesses run by women and people of color.
However, this current battle felt particularly insulting given the time I spent ensuring my finances exceeded the basic requirements for a home loan. I ended up consulting with a retired underwriter who happened to be black. She told me that she never denied someone like me in her entire career in the
mortgage underwriting
industry. She also told me that I had to either decide to let the discrimination win or accept that I should keep trying to find an institution willing to fund someone who looked like me.
After that conversation, I took the advice I often give my clients and started looking for a loan company with a diverse staff (which previous ones didn’t have). Organizations whose employees reflect the communities they serve are more likely to have fair and unbiased underwriting policies.
I ended up being referred to several lenders with very diverse teams. This time, I told the owner of the brokerage firm why the first two institutions turned me down, and he immediately told me that none of these facts were a problem. Shortly after reviewing my application, this third and final company set a closing date of three weeks later.
My experience was not unique
As infuriating as this experience was, it is unfortunately not isolated. For decades, US banks have engaged in redlining, denying mortgages to black and Latino families who live in certain areas. When it comes to business loans, predominantly white neighborhoods receive, on average, approximately twice as many small business loans per capita compared to black neighborhoods. The annual number of US Small Business Administration (SBA) loans to black businesses decreased 84% since before the 2008 financial crisis.
Although redlining was prohibited by the Fair Housing Act of 1968 and the Equal Credit Opportunity Act of 1974, the practice still exists today. According to a New York Times report, 75% of the first round of government Paycheck Protection Program (PPP) loans in 2020 went to businesses in majority white census tracts. The four of the nation
biggest banks
— Citi, Bank of America, JPMorgan and Wells Fargo — does 91% less SBA 7(a) loans to Black-owned businesses in 2019 than in 2007.
These illegal practices have had a devastating impact on society, locking families into poverty for generations. Imagine how economically stronger communities of color would be today if they had been able to establish themselves in business and real estate decades ago.
3 steps to take before making a big financial move
Nevertheless, there are steps you can take to hold yourself accountable before embarking on any financial process:
- Do your research: Learn about how loans work, current interest rates, the documentation required to apply and the different loan products available to you. Shop around and compare offers from various lenders. Find as much information as possible and take your time. Don’t rush the process!
- Know your credit history: It’s so important! Your credit score weighs heavily on your ability to get a loan. If you know you have problems with your report, address them first, if you can. You can apply for a loan regardless of your credit score, but understand that the terms and rates may not be affordable.
- Patronize the platforms and companies that want to see you win: Traditional banks aren’t the only game in town. There are a number of financial technology (aka “fintech”) companies – like EnrichHER – that cater to underserved consumers. These companies provide everything from online banking to loans to payroll processing and often intend to make an impact in the community.
You have the right to take legal action if you believe you have been discriminated against. resources such as the legal services company and LawHelp.org can help you find civil rights lawyers in your area who will help you get justice. You can also lodge a complaint against the offending company with the Consumer Financial Protection Bureaua federal agency that enforces consumer financial law.
Frankly, more needs to be done to combat racism and discrimination in the financial sector. I try to do my part as an advocate for financial inclusion, but it’s not enough. Change will occur when diverse consumers begin to invest their resources in financial institutions dedicated to the economic well-being of their communities.
