CNN has published an article about racial disparities in mortgage lending rates at Navy Federal Credit Union. The controversial news network conducted a study on conventional loans and they discovered a 48% approval rate for black applicants and a 77% approval rate for whites. They also concluded that black applicants were twice as likely to be denied mortgage applications at NFCU. CNN conducted the study keeping factors such as income, debt, property value, and down payment in mind. In scenarios where the aforementioned values line up, there are still disparities.
Navy Federal Credit Union responded to the article by saying CNN does not have all of the pertinent information that goes into credit applications being approved or denied. NFCU also says they are committed to fair and equitable lending practices. CNN even said that their study does not prove NFCU is guilty of any sort of racial discrimination. However, when a normal person simply glances at the headline, the takeaway is that NFCU is racist toward black applicants.
The main thing CNN does not have access to, due to customer privacy, is credit scores. A person may have equal income, debt, and collateral to another potential borrower, but that does not give the full picture of their financial status or history. Even if credit scores are equal, there could be specific things in that credit score that set off red flags to the lender, such as bankruptcy, repossession, child support debt, and student loan debt.
CNN only researched disparities when it comes to conventional loans. They did not show any data referencing FHA loans, which are more approachable due to their lower barrier to entry. Conventional loans require a 20% minimum down payment. So, for a $500,000 home, a potential borrower must have $100,000 in cash that they can immediately transfer to the lender. The down payment cannot be cash derived from a loan and it cannot come from a credit card. FHA loans only require a 3.5% downpayment. So that $100,000 becomes $17,500 on a mortgage of $500,000.
The banking industry does have problems and these problems are widely known. Several giants in the industry had to be bailed out by the Federal Government, including a couple of institutions that were recently saved by totally ignoring the FDIC rules on insuring deposit limits. However, just because banks are flawed does not mean that they are inherently racist. Especially when it comes to making money, which is their sole purpose for existing.
Navy Federal Credit Union rejected more than half its Black conventional mortgage applicants last year | CNN Business
Black CEO says he was shocked by credit union’s controversial decision – YouTube