Settlement is a warning to females, minorities Network of loan firms allegedly charged them excessive extra points

Nation's Housing

September 15, 1996|By Kenneth B. Harney

A $4 MILLION Justice Department settlement with a large mortgage company this month highlights a lending industry practice that minority, female and senior-citizen loan applicants nationwide should know about -- and avoid whenever possible.

The settlement, negotiated with California-based Long Beach Mortgage Co., alleged that not only employees of the firm but its network of independent mortgage brokers routinely charged minorities, women and elderly applicants significantly higher fees or "overages" than they charged white male applicants.

An African-American woman over the age of 55 was nearly four times more likely to be charged 6 points (6 percent of the loan amount) in fees by independent brokers selling loans to Long Beach than non-elderly white male applicants, according to the Justice Department suit.

In settling with the government to avoid protracted litigation, Long Beach Mortgage denied that it intentionally charged any group of applicants higher fees.

As part of the settlement, Long Beach agreed to pay $3 million to 1,200 borrowers identified by the Justice Department as victims of discriminatory mortgage pricing between 1991 and 1994. It also agreed to provide $1 million to be used by public-interest groups to create programs to educate consumers about loan-fee practices.

An attorney representing Long Beach Mortgage, Laurence Platt of the Washington law firm of Kirkpatrick & Lockhart, called the issues raised by the case "complicated and very troubling." A wholesale lender like Long Beach deals with large numbers of far-flung, small local brokers, according to Platt. Each broker has its own approach to marketing, pricing and negotiating fees with applicants.

In Long Beach's case, a central-city broker might charge all applicants -- minority and nonminority, young and old -- 4 points on top of the posted rate. Another broker located in a predominantly white suburb might charge all applicants 3 points. Neither broker discriminates illegally, Platt said.

Yet to the extent that the first broker's clients are overwhelmingly minorities, and the second broker's clients overwhelmingly white, the wholesale mortgage company's aggregate purchases from these brokers will exhibit an apparent racial disparity on pricing.

"At the end of the day," Platt said, "there might be differences in prices" between minority and nonminority applicants, "but they are not the result of illegal discrimination."

The upshot of the settlement for you? Negotiate aggressively on fees as well as rate when shopping for a loan, especially through a mortgage broker.

In most cases, the broker has no fiduciary duty to you under state law to deliver the lowest possible combination of rate and fees. High-quality brokers disclose this to you clearly prior to the application process.

And if you are a minority group member, female or elderly you should bear this in mind: The Justice Department has statistical evidence that you are at higher risk than others to pay more than you need to on your next home loan.

So don't.

Pub Date: 9/15/96

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