Expert offers tips on how to avoid becoming a victim of redlining
NEW YORK - Recently the Justice Department reached a $13 million settlement with New Jersey mortgage lender for discriminating against communities of color in New Jersey.
Applicants were denied loans for housing in certain neighborhoods even though they were eligible.
Experts say the discriminatory practice, known as redlining, is something some minorities have faced when seeking loans.
CBS2's Zinnia Maldonado explains how to prevent becoming a victim.
Whether you're seeking a loan to purchase a home or kickstart your small business, it can be a lengthy process to get approved by big banks. And if you get declined, experts say it could be for an array of reasons.
"Because of credit scores, or money in reserves, or debt-income ratio. But you also have to wonder is there something else going on, at the end of the day," said Jessica Lautz of the National Association of Realtors.
But research shows both Black and Hispanic candidates have a higher chance of being denied for a loan.
"In the data even for successful homebuyers who do end up purchasing a home, we saw the denial rate is higher for Black and Hispanic individuals who secure a loan, and their denial rate is 7% compared to white individuals recent home buyers, which is 4%," Lautz said.
David Troutt is a law professor at Rutgers University and studies discriminatory lending. He says it's important to press lenders on why you're being denied.
"You should ask detailed questions. Make sure you get the name of the loan officer you're speaking to. Make sure all the terms are stated up front," Troutt said. "Make sure they slow down and explain what's going on, what the risks are, how you're being evaluated."
Late last month, the Justice Department reached a $13 million settlement with New Jersey mortgage lender Lakeland Bank for redlining minority neighborhoods in the Newark area.
Troutt calls the outcome a big win but surprising because many minorities don't move forward filing complaints after being denied, even though it's a move he says can lead to change.
"People have to know what's happening to people, and that way we're able to activate enforcement the way we saw in the Lakeland case," Troutt said.
Joe Sky-Tucker is the CEO of Business Impact Northwest, a company that helps individuals who have been declined for loans. He says the ability to know if you're being racially discriminated against is the crux of the issue.
"How does a Black or Brown candidate know that they're being declined from the bank for the right, appropriate reasons or for the wrong reasons and they should move forward filing a complaint?" Maldonado asked.
"It's often hard to prove that the decision was made based on racially motivated type of decision," Sky-Tucker said. "Unfortunately a lot of the burden falls on you, the consumer, to follow up on these incidents looking for systemic issues."
Experts say despite many federal and state regulations placed on banks to treat all who walk through the door fairly, oftentimes individual cases can fall through the cracks.
"Redlining is bad banking, and it's bad for consumers, but it's much worse for the country because it continues trends we have to outgrow and stamp out," Sky-Tucker said.
