How Mortgage Lenders Discriminate Against Their Most Reliable Borrowers
Despite being a better risk than men, women are still charged higher rates.
It is perhaps not so surprising that single women are penalized when it comes to financing, but the real humdinger is the other conclusion the authors of some recent reports reach: While single women are charged more for their home financing, they are in fact the more stable and reliable prospective borrowers.
These days, it’s becoming harder and harder to ignore the rampant (and often veiled) sexism which pervades all facets of daily life, as report after report surfaces, providing long-awaited statistical proof of the inequalities women face when it comes to business, salaries and representation.
Indeed, just recently, one such report identified the lack of female representation in commercial real estate. It’s a noteworthy observation, given that the residential real estate marketplace is somewhere where women, historically, have been tremendously successful. Another such report, conducted by the Urban Institute and covered by the Washington Post, investigates how single women are treated by residential mortgage lenders.
The report—conducted by Laurie Goodman, co-director of the Housing Finance Policy Center of the Urban Institute, and Jun Zhu, senior research associate at analytics firm Core Logic—reveals that single women pay mortgages more faithfully than both single men, and unmarried and married couples.
In fact, even though single women tend to have lower incomes on average than single men, researchers found that they are statistically less likely to default on their mortgage repayments and more likely to secure larger down payments on properties. Furthermore, single women are charged more for home loans and denied credit more often.
You might be tempted to argue that single women represent an unknown quantity for mortgage lenders: there aren’t that many of them applying for mortgages, and therefore the risk associated with lending to this demographic is high—just as car insurance premiums for a teenage male driver will be higher than for a female driver of 20 years.
However, the Urban Institute report also reveals a key statistic: Single women now represent the second-largest group of buyers in the marketplace. They account for 15-20% of all home purchases since 2012, whereas single men account for just 9% across the same period. Married buyers once represented four fifths of the market, but that number has dramatically dwindled in recent years: from 81% of all home purchases in 1985, to 67% in 2015. According to a 2015 report by the National Association of Realtors, unmarried couples make up just 7% of the market.
So, if single women are becoming a large-scale market demographic, with proven borrowing clout, why are they regularly being penalized with higher rates? Well, according to the Urban Institute report, single women tend to present “weaker credit characteristics” at the loan application stage. On the flip side, however, women defaulted at lower rates than single men across the three time periods featured in the report, covering wildly different economic situations: 2004 to 2007 covered the housing boom; 2008 to 2010 covered the housing bust and financial crisis; and 2011-2014 covered the post-recession recovery. In all periods, women defaulted less than single men.
It’s too easy to adopt a similarly sexist view to explain away these numbers, arguing that women are more emotional and therefore buying a home for them represents security, the chance to nest etc. The reality of the situation is that mortgage lenders are operating using a dated system, one that doesn’t take into account the shifting demographics of the modern era, and they need to reassess these systems if they are to not only make the most out of a burgeoning market, but also avoid salient accusations of discrimination.
The report’s authors make a sound final point: “Given that more than one third of single women borrowers are minorities and almost half of them live in low-income communities, we need to develop more robust and accurate measures of risk to ensure that we aren’t denying mortgages to women who are fully able to make good on their payments.”
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