In 2018, a study by UC Berkeley found that homebuyers of color were being discriminated against whether they interacted with traditional human lenders or online lenders who relied on algorithms. The researchers were able to isolate pricing differences that correlated with race and ethnicity apart from credit risk, and found that:
Black and Latino borrowers paid 5.6 to 8.6 basis points higher interest on purchase loans than white and Asian ethnicity borrowers, and 3 basis points more on refinance loans.
For borrowers, these disparities cost them $250M to $500M annually.
For lenders, this amounted to 11% to 17% higher profits on purchase loans to minorities, based on the industry average 50-basis-point profit on loan issuance.
Racial discrimination is a scourge no matter the source, but this study spotlighted the racial bias baked into mortgage algorithms, a troubling result considering the promise of AI.
Today, we published an article from Daniel Shoag, associate professor of economics at the Weatherhead School of Management at Case Western Reserve University, demonstrating that buyers of color who used online fintech lenders receive more equitable rates.
From Shoag:
"Like many researchers before, I conclude that Black and Hispanic borrowers receive less-attractive rates from traditional, face-to-face lenders than those received by white borrowers. These differences are statistically and economically significant, potentially adding up to hundreds of millions of dollars per year in interest payments.
"These differences disappear, however, when examining borrowers from FinTech lenders. Matched analysis of similar Black, Hispanic and white borrowers at these lenders show that they receive virtually identical terms. Black and Hispanic FinTech customers secure similar annual percentage rates (APRs) when buying a new home and in refinancing."
It's despicable that racial discrimination is still being practiced by face-to-face lenders, but the equity seen with fintech companies could provide a work-around that finally levels the playing field. Read more here.
Nearly 16% of overall forbearance exits represented borrowers who did not make all of their monthly payments & exited forbearance without a loss mitigation plan in place.
The market isn't showing any signs of slowing down, with the last rate dip creating a surge in both the refinance and purchase markets. Computershare Loan Services has end-to-end and component fulfillment options to help you meet industry demands and get your borrowers to the closing table. Learn More!
Servicers should be communicating with borrowers early, ensuring to do so in a compliant manner by staying abreast of the current and proposed regulations, CFPB or otherwise. Alert them that they do have the option to sell their house now while in forbearance if they wish as a forbearance exit option. Presented by Altisource
Regulatory changes have caused agencies to be choosier about the loans they fund. As a result, more borrowers may hear "no" than a "yes". We can accommodate a variety of different borrowers. HomeXpress can turn that "no" into a "yes" with Non-QM solutions. Curious? Learn More!
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