The nation’s largest credit union rejected more than half its Black conventional mortgage applicants (CNN).
CNN broke a great story about discriminatory mortgage lending practices against Blacks by the Navy Federal Credit Union(NCFU). Many major US banks have long been accused of mortgage discrimination but Navy Federal made headlines with the high denial rate of Black applicants. There was a 29% difference in mortgage approval.
Navy Federal specializes in providing bank services to military service members and their families. The data came from a 2022 survey by the Consumer Financial Protection Bureau. Navy Federal Credit Union is based in Vienna, Virginia, and has an operations center in Pensacola, FL. NCFU serves 13 million members and $165 million in assets.
We want to look at this original story plus some additional articles that add context. The story is important because owning real estate is the single biggest wealth-building method for middle-class people in the United States and for African Americans in the US. There is a long history of mortgage discrimination in the United States. The long-term effect is to deprive Black people of the single biggest wealth-building program available. Mortgage discrimination also has created residential segregation, poor schools, and limited job opportunities.
Finally, many reparations calculations are based on housing discrimination. Homeownership and value may be the best way to measure long-term discrimination in society. “The case for reparations”–2014 (Atlantic) leans heavily on discrimination in the housing market to justify reparations.
Interestingly, based entirely on the author’s observations as a NFL Sunday Ticket Subscriber, the Navy Federal Credit Union has pulled all of its advertising during NFL football games. They used to be a major sponsor, running about 4-5 spots per game, but they have disappeared recently since the article on CNN broke. Bad press beat ads every time. Discrimination is not a good look.
The CNN Article
The nation’s largest credit union rejected more than half its Black conventional mortgage applicants (CNN). Seventy Five percent (75%) of White applications were approved for a conventional mortgage while only 48% of Black applicants were approved. It is the largest gap of any mortgage granting institution in the survey. For comparison, Bank of America had a 3.5% difference and the second largest credit union, State Employees Credit Union had a 5% gap.
CNN reported that: “The largest credit union in the US has the widest disparity in mortgage approval rates between White and Black borrowers of any major lender, a trend that reached new heights last year, a CNN analysis found.” The credit union had the largest approval gap of the top 50 conventional mortgage-originating lenders.
CNN found that: “Black applicants to Navy Federal were more than twice as likely to be denied as White applicants even when more than a dozen different variables – including income, debt-to-income ratio, property value, downpayment percentage, and neighborhood characteristics – were the same.”
The report also found more troubling statistics: Blacks with an income of $140,000 had a lower approval rate (59.3%) than Whites making $62,000 (59.8%).
The data in the report was made available by the Consumer Finance Protection Bureau which started collecting mortgage loan data after the 2008 financial recession.
Navy Federal, in a press release, said that they also consider “credit scores, cash balances, and a relationship history with the lender.” However, NCFU declined to release the additional data. CNN also noted that credit unions are not covered by the Community Reinvestment Act (CRA) which encourages lending to make loans in low and moderate-income communities.
Class action lawsuit alleging discrimination filed against Navy Federal after CNN exclusive report (CNN) – A lawsuit was brought against Navy Federal in northern Virginia on the basis of violating the Fair Housing Act of 1968 and the Equal Credit Opportunity Act, which prohibits lending discrimination based on race. The lawsuit on behalf of two individuals could expand into a class action law-suit on behalf of Black and Latino mortgage loan applicants since 2018.
Attorney Ben Crump Files Lawsuit on Behalf of Black Victims of Navy Federal Credit Union’s Discriminatory Lending Practices (Ben Crump)
Other opinions
Navy Federal Credit Union is getting heat that the whole lending industry deserves (MSNBC) — Focusing on individual actors is not the way to ultimately eliminate discrimination in the mortgage lending industry.
Maxine Waters, ranking member of the House Financial Services Committee, issued a statement on Navy Federal Credit Union’s Lending Practices (Maxine Waters) which called attention to the fact they are discriminating against their own members.
“As a long-time champion of credit unions and their mission, I was appalled and shocked to see the reports by CNN that the privately run Navy Federal Credit Union has routinely engaged in a pattern of discrimination against its Black and Latinx members. Specifically, it appears that the credit union has rejected more than half of its Black typical mortgage loan applicants and nearly half of its Latinx applicants, denying thousands of Black and Latinx servicemembers, veterans, and their families the dream of homeownership and wealth-building opportunities.”
Here are the links to the actual data used in the article
Consumer Finance Protection Bureau – Home Mortgage Disclosure Act (HMDA) – Data web page
More data about Navy Federal. Navy Federal Credit Union (National Credit Union Administration)
Since we love data, here is the link to the dataset used in the article. (FFIEC – Home Mortgage Disclosure Act).
Press coverage and reaction
Following the article, Navy Federal Credit Union issued a press release (NCFU), stating that they are the 3rd largest Black mortgage lender and they have originated 3.5 Billion to Black borrowers in 2022. They have also hired a prominent civil rights lawyer, Debo P. Adegbile, a former commissioner of the US Commission on Civil Rights, to review lending practices.
Interestingly, based entirely on the author’s observations as a Sunday Ticket Subscriber, the Navy Federal Credit Union has pulled all of its advertising during NFL football games. They used to be a major sponsor, running about 4-5 spots per game, but they have disappeared recently since the article on CNN broke. Bad press beat ads every time.
Many people have tried to look behind the apparent discrimination. They have looked at loan officer behavior. Navy Federal may have a “good old boy” with few minorities in management positions and no Black loan officers. It has long been known that loan officers help people who “look like them.” Several loan officers on Reddit discussed unconscious bias when helping originate loans.
Conservative media and commenters blamed credit scores that were not released by NCFU, but failed to acknowledge the size of the problem or the differences between banks.
Others have blamed Bank computer system algorithms for assessing which mortgage loans are risky. However, the Federal Housing Finance Agency is revising it’s FICO credit scoring model. The new model is called dual FICO 10T and VantageScore 4.0. The model will include things like rental payment history.
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Mortgage discrimination has a long history in the US
Here are the infamous HOLC redlining maps that bankers used to deny mortgages. (National Community Reinvestment Coalition)
Almost every large bank has been sued for mortgage discrimination as have insurance companies.
Wells Fargo. Justice Department Reaches Settlement of More Than $175 Million to Resolve Fair Lending Claims (US Justice Department) – 2012
City National Bank of Los Angeles (PBS.org) – 2023
JP Morgan Chase (Reuters) – 2017
Racial discrimination in mortgage market persistent over last four decades (Northwestern University)
Organizations fighting Mortgage Discrimination (National Fair Housing Alliance)
Credit Scores and Credit Reports
Thanks to Federal law passed in 2003, everyone is entitled to a free credit report once a year. Go to AnnualCreditReport.com.
The three credit rating companies: Equifax, Experian, and TransUnion also offer free credit reports but want to “Upsell” you with services you don’t need.
Your credit score and credit report are not the same thing. You want the credit report with the details. The detailed credit report that lists your payment history with every major credit granting and bill-paying organization. These come from the big three credit scoring agencies
Be wary of the credit repair business. They are charging you for work you have to do anyway to fix your credit. But they skim a little off the top for nothing.
Also watch out for websites that offer credit monitoring and identity theft services. These are high priced scams that pray on fear, like “Life-Lock.”
Disputing Errors on Your Credit Reports
All credit rating companies are required to a public process for contesting credit scores and removing incorrect items.
Here is how to dispute an item on your credit report. (Consumer Finance Protection Bureau)
What you can do?
Report mortgage discrimination to the government and political leader
Federal
Housing and Urban Development – Fair Housing and Equal Opportunity page – report housing discrimination here. Yes, the squeaky wheel gets the oil
What to do if you feel like you feel like you’re the victim of mortgage discrimination
State
Contact your state representatives and State Banking Regulators. Banks are regulated at the state level.
Other ways to measure creditworthiness such as payment history for rent, credit cards or car loans. Even utility bills can be considered.
Politics related to Mortgage Discrimination: Great Recession of 2008
Obama’s presidency was shaped by three things: and the Affordable Care Act, , limits on fiscal spending and the financial recession of 2008,. But he also signed the Consumer Finance Protection Bill.
Let’s look at the financial recession. The 2008 Great Recession was blamed on loans to people with high credit risks. Very much like blaming the victim. The real reason was an opportunity for quick money and under-capitalized banks. Large under-capitalized banks created a “systemic” risk to the financial system. This systemic risk meant that many banks were too big to fail and had to be bailed out. The downside would be not just a severe recession but a global depression if credit dried up. So the Federal Reserve started quantitative easing. QE is cheap money for financial institutions to increase liquidity in the lending market.
The recession has had a huge impact on Black homeownership from which we are still recovering. Black home ownership went from 47% to 41%.
But, thanks to Senator Elizabeth Warren, Barney Frank and others we got the Consumer Finance Protection Bureau. The data in the report comes from the CFPB. Without the CPFB, we would not know this specific problem with Navy Federal existed. Sen. Warren has also proposed many reforms to the banking system including Postal banking and tighter regulation.
Globally, the international banking sector has proposed rules to increase bank capital requirements, called Basel III. Large banks oppose these measures saying it would cut into profits.
Navy Federal Appears to Employ NO Black male employees let alone loan officers
Mortgage discrimination starts with the loan officer hiring process. It is deeply embedded in the banking industry.
We wanted to point out a related but undiscussed topic: Loan officer demographics. If you look at the NFCU blog, https://www.navyfederal.org/makingcents/blog.html, they have zero visible male minorities. Second, they are located in Vienna, Va and Pensacola, FL. Two very white and conservative areas. Looks like a company that did not change with the demographics of the military. 1948, President Harry Truman signed Executive Order 9981 integrating the armed forces. To bad, private industry was exempt.
Does NCFU have any Black or even any Minority loan officers outside of Hawaii?
More resources
African American Credit Union Coalition released as statement
Reducing the Racial Homeownership Gap (Urban Institute)
Discriminatory Effects of Credit Scoring on Communities of Color
National Fair Housing Alliance
Finally, there is an interesting idea in Black economics related to credit scores. “Credit scores may be the best example of structural racism in the real world.”