All Other Things Being Equal: A Paired Testing Study of Mortgage Lending Institutions

The U.S. Department of Housing and Urban Development contracted with the Urban Institute to rigorously assess the effectiveness of paired testing for determining whether minority homebuyers receive the same treatment and information as whites at the pre-application phase of the mortgage lending process, and to produce rigorous measures of the incidence of unequal treatment in two metropolitan areas. The mortgage lending process consists of a complex series of stages, including advertising and outreach by lending institutions, responses to preapplication inquiries from potential borrowers, approval or denial of loan applications and determination of loan terms and conditions, and finally, loan administration. Discrimination may occur at any of these stages and may take different forms at different stages.

The report found that African American and Hispanic homebuyers in both Los Angeles and Chicago face a significant risk of unequal treatment when they visit mainstream mortgage lending institutions to make pre-application inquiries. Discriminatory treatment at this early stage in the mortgage lending process has the potential to discourage some minorities from continuing their housing search, to limit their search to lower cost homes than they could actually afford, and to prevent them from choosing the most favorable loan products.