Over the past few months, a number of complaints have emerged accusing banks and other mortgage lenders of using unfair practices to determine the worth of mortgage and mortgage loan modification applicants.
Specifically, the complainants take issue with the widespread practice of requiring all borrowers applying for loans with 3.
5 percent down payments to have a FICO credit score well above 580.
Minority Applicants Dismissed without Grounds FICO scores appear on a scale between 300 and 850, with the higher scores supposedly associated with borrowers that have a lower risk of future default or credit card debt.
Critics argue that the high FICO requirements discriminate against Latino and African-American applicants.
Of the applicants considered, many have FICO scores above 580, which is the limit set by the FHA, but below the 620 to 660 minimum requirements frequently set by banks and other lenders.
The complainants contend that there is no legitimate justification for dismissing applicants purely on the basis of their FICO score.
The FHA insures lenders against incidences of severe mortgage debt or foreclosure.
Lenders thus experience little in the way of negative repercussions from a borrower defaulting on their payments.
Coalition of Plaintiffs Uses Undercover Testing Methods The banks facing legal suit all have minimum FICO requirements well above the FHA's 580 required limit.
On the other side is a coalition of 600 consumer and economic development associations, as well as a significant number of civil rights groups.
The coalition claims to have conducted "extensive tests" among numerous major lenders.
Using "secret applicant" methods, in which a tester would present themselves to a bank as a qualified applicant with a FICO score between 601 and 605, the coalition claims they have proven without doubt that most major lenders would reject such an applicant.
They go on to contend that banks ought to know that Latinos and African-Americans disproportionately have credit scores in the 580 to 620 range, making the policies, in effect, discriminatory.
However, a representative from one of the banks under fire maintains that their policies are only intended to ensure that those who receive loans are in the best possible position to repay them.
Their methods are, supposedly, based on an in-depth analysis of borrower performance data; the limit is based solely on what constitutes an "acceptable" level of risk for the lenders.
They deny any accusations of discrimination or intent to exclude portions of the population from receiving mortgage loans.
Specifically, the complainants take issue with the widespread practice of requiring all borrowers applying for loans with 3.
5 percent down payments to have a FICO credit score well above 580.
Minority Applicants Dismissed without Grounds FICO scores appear on a scale between 300 and 850, with the higher scores supposedly associated with borrowers that have a lower risk of future default or credit card debt.
Critics argue that the high FICO requirements discriminate against Latino and African-American applicants.
Of the applicants considered, many have FICO scores above 580, which is the limit set by the FHA, but below the 620 to 660 minimum requirements frequently set by banks and other lenders.
The complainants contend that there is no legitimate justification for dismissing applicants purely on the basis of their FICO score.
The FHA insures lenders against incidences of severe mortgage debt or foreclosure.
Lenders thus experience little in the way of negative repercussions from a borrower defaulting on their payments.
Coalition of Plaintiffs Uses Undercover Testing Methods The banks facing legal suit all have minimum FICO requirements well above the FHA's 580 required limit.
On the other side is a coalition of 600 consumer and economic development associations, as well as a significant number of civil rights groups.
The coalition claims to have conducted "extensive tests" among numerous major lenders.
Using "secret applicant" methods, in which a tester would present themselves to a bank as a qualified applicant with a FICO score between 601 and 605, the coalition claims they have proven without doubt that most major lenders would reject such an applicant.
They go on to contend that banks ought to know that Latinos and African-Americans disproportionately have credit scores in the 580 to 620 range, making the policies, in effect, discriminatory.
However, a representative from one of the banks under fire maintains that their policies are only intended to ensure that those who receive loans are in the best possible position to repay them.
Their methods are, supposedly, based on an in-depth analysis of borrower performance data; the limit is based solely on what constitutes an "acceptable" level of risk for the lenders.
They deny any accusations of discrimination or intent to exclude portions of the population from receiving mortgage loans.