Co-borrowers may want to rethink whose name goes first on a mortgage application.
Early findings from a study under way at the Woodstock Institute found that in the six-county Chicago area, joint applications for home purchases and refinancings were much more likely to be approved if a man was listed first on the application.
The study, which was controlled to account for a loan's size relative to the borrowers' income, also found that joint purchase and refinance applications headed by an African-American woman were far less likely to be approved than joint applications submitted by women of other ethnicities. African-American women-headed joint purchase applications were 34 percent less likely to be approved than applications on which the primary borrower was an African-American man. For mortgage refinancings, African-American women-led applications were almost 44 percent less likely to receive the loans.
While only one year of data were examined, researchers at Woodstock say the early findings are troubling.
"It's unlikely that there isn't some element of discrimination," said Spencer Cowan, vice president of research at Woodstock. "It may be totally unconscious."
Woodstock, a Chicago-based public policy and research organization, studied loan data available on about 257,000 purchase and refinance mortgages originated in 2010, for applicants with incomes of $20,000 to $999,000 and loan amounts of $20,000 to $800,000. The loans included those held in a bank's portfolio as well as those backed by Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration.
Researchers at Woodstock said they don't expect the disparity between male and female borrowers to significantly change as they look at an additional four years of data dating to 2007.
The results, Cowan said, show the need for additional loan data to be reported to the federal government, and include information on items such as age and credit scores of borrowers and the appraised value of properties, in order to better explain lending patterns.
The 2010 Dodd-Frank Wall Street overhaul legislation called on the Consumer Financial Protection Bureau to improve mortgage disclosure data, and last month Woodstock and 13 other organizations urged the bureau to begin its rule-making on the subject.
Diane Thompson, of counsel at the National Consumer Law Center, agreed that there could be any number of other factors at play. For instance, if a woman is listed first on an application but the male co-borrower's credit is impaired, the overall strength of the couple as borrowers wouldn't be as strong. Additional mortgage lending data could explain that denial.
But she still believes there is gender bias at play.
"There are lots of different things that could be contributing to it, but it suggests to me that it's part of the long-established tradition of discrimination against women," Thompson said.
The overwhelming majority of home loans are backed by Fannie Mae, Freddie Mac, the FHA or other government-supported entities that each have their own loan approval standards. But in an era when lenders are afraid of having to take back bad mortgages from those entities, lenders also have their own loan approval processes in place.
Lenders declined to comment on Woodstock's findings, not having seen them, but several lenders noted that many consumers submit applications online and they are processed just as they are filled out by an applicant.
"There is nothing in our mortgage underwriting process that differentiates or distinguishes between co-applicants based on the order in which their names appear on loan documents," Terry Francisco, a Bank of America vice president, said in an email.
Last month, the Department of Housing and Urban Development adopted standards for the Fair Housing Act's disparate impact provisions, formalizing a theory that a housing policy can be discriminatory if it applies to everyone but leads to discrimination, regardless of whether it was intentional.
Cowan said the early results of Woodstock's research are "a perfect example of disparate impact. Something in the system is resulting in women applicants with a male co-applicant getting far fewer loans."
While the finding is unusual and surprising, Jeanne Lewis, an assistant vice president and lending compliance officer at Glenview State Bank, isn't so sure the higher rejection rate for women-led applications can be labeled discrimination.
"I'm not sure it indicates any wrongdoing, because the loan is being declined to both parties," she said. "For it to be a discriminatory practice, it would have to be one of the protected classes being declined. In my mind, it's not discriminatory."