One of the nation's largest banks discriminates against black, Latino, and Asian homebuyers by offering lesser qualified white borrowers higher loan amounts and using hidden racial criteria in one of its loan programs, according to a lawsuit filed last week in federal court in Manhattan. The suit also accuses the bank of steering homebuyers to certain neighborhoods based on their race or ethnicity.
The lawsuit claims that M&T Bank violated the landmark Fair Housing Act, a 1968 law that sought to end discriminatory lending practices and limit the historic segregation of many of the country's cities. The suit was filed by the Fair Housing Justice Center, a New York City-based non-profit organization that is funded by the United States Department of Housing and Urban Development to enforce the federal law that bans housing discrimination.
Between 2012 and 2014, the Fair Housing Justice Center conducted a series of tests in which it sent out trained actors to explore whether white and non-white homebuyers would be treated differently when trying to prequalify for a mortgage. All followed a similar script, telling bank officers they were married with no children and were first-time homebuyers. The black, Latino, and Asian testers presented slightly better qualifications when it came to income, credit, and additional financial assets.
In nine separate interactions recorded either with a camera or an audio devices, employees at M&T Bank's New York City loan office can be seen or heard treating the white applicants differently than the others, according to the suit. In one instance, a black candidate was told she did not have enough savings to buy a home. A white applicant with slightly lower income and credit scores and $9,000 less in savings was pre-approved for a loan. In another case, a Latina candidate was told she would qualify for a mortgage $125,000 less than the test's white candidate with lower income, poorer credit, and less cash.
"We would expect to see people get equal treatment or minority testers getting slightly higher loan amounts because they were slightly better qualified. But a considerable amount of the time, we found different treatment that favored the white testers."
"Defendant's conduct, as described above, constitutes discrimination in making available residential real estate-related transactions and in the terms and conditions of such transactions on the basis of race or national origin in violation of the Fair Housing Act," the lawsuit says.
A complaint against a lender based solely on secret testing is quite unusual. Several fair housing experts could not think of another case. Because lawsuits against banks typically results from statistical disparities, whistleblowers, or consumer complaints, this case could open up a new legal means of pursuing discriminatory lenders.
M&T Bank spokesman Michael Zabel would not answer questions about the allegations in the lawsuit. He sent a one-paragraph statement that said the bank had the "highest percentage of African-American home purchase borrowers and dedicated the highest percentage of its deposits to community development lending. These facts reflect our deep commitment to fair lending, and to serving all of our neighbors in all of our communities," according to a report by the Association of Neighborhood Housing and Development. He also wrote that, "This issue is of the utmost importance to us, and we began taking steps immediately to investigate and address this claim."
New York-based M&T Bank is the 17th largest commercial bank holding company in the U.S., according to the lawsuit. The regional bank operates more than 700 branches in New York and seven other states and Washington, D.C. The fair housing organization believes that the case pulls the curtain back on how discrimination still occurs in lending even though the kind of overt bigotry that prevailed generations ago is rarely seen. The lawsuit, it turns out, comes as the Supreme Court is actively considering the reach of the 1968 federal fair housing law.
Fred Freiberg, the executive director of the Fair Housing Justice Center, has been working in fair housing enforcement for nearly four decades and runs one of the most prolific fair housing testing agencies in the country. He also designed the U.S. Department of Justice's fair housing testing program.
Of the tests the organization ran with M&T, Freiberg said: "We would expect to see people get equal treatment or minority testers getting slightly higher loan amounts because they were slightly better qualified. But a considerable amount of the time, we found different treatment that favored the white testers."
The lawsuit asserts that, in addition to white testers being favored, the bank ran a first-time homebuyers loan program that used the racial make-up of the area where the home would be purchased as criteria, and that loan officers used the program to steer non-white homebuyers to largely non-white neighborhoods.
"This came as a bit of shock," Freiberg said.
In some instances, the suit claims, loan officers steered white testers away from that loan and advised them to look for homes in heavily white areas while advising non-white testers to look in heavily black and Latino areas.
"I highly doubt you're gonna buy in an area where you're a min ... more minority than majority," a loan officer told a white tester.
It is illegal under the Fair Housing Act for lenders or real estate agents to suggest neighborhoods to customers based on race.
Greg Squires, a public policy professor at George Washington University and a financial services expert who has written extensively on housing segregation and industry discrimination lawsuits, said the evidence offered in the lawsuit involving nine attempts to pre-quality for a mortgage is troubling.
"It is very striking," he said. "When you have as many cases as they did here I think it is difficult to try to explain it away as a bad apple."
Squires said that what M&T's being accused of is not as bad as when Wells Fargo employees were accused of targeting subprime loans as "ghetto loans" for "mud people." But the effect, he said, is the same. "It is going to perpetuate segregation," Squires said.
Further, he argued, when minority homebuyers get lower loan amounts than they are qualified for, it means they are not able to buy as nice a home or live in as nice a neighborhood as equally, or even lesser qualified whiter homebuyers. And since more affluent neighborhoods tend to have access to better schools, amenities, and services, this type of discrimination has significant consequences.
In recent years, the U.S. Housing and Urban Development has consistently found that racial steering—the leading of black and Latino home seekers away from whiter areas and white home seekers away from more diverse areas—is among the most common forms of housing discrimination. In fact, steering has been increasing even as other forms of housing discrimination have been waning, studies show.
"You see less evidence of the proverbial door being flung in the face of minorities. It's more the door is being flung more widely open for white people," Squires said. HUD's studies found "black and Hispanic buyers, they weren't necessarily being denied service, but shown fewer homes in fewer neighborhoods."
Modern-day discrimination is harder to detect. It's unlikely that any of the Justice Center testers would have known they'd been offered different terms if they did not have another tester's experience to compare it to. In the recordings, the loan officers are genial, polite, and seem helpful and concerned. They did not deny loans but offered different ones or smaller amounts.
That's why fair housing advocates contend that the secret testing of landlords and real estate agents is often the only means of rooting out housing discrimination. Even then , testing is rarely done, as an earlier ProPublica investigation found.
Testing of the lending market is rarer still. Loan transactions are much more complicated than simply asking a landlord if any apartment is available, and so this type of testing requires more training and is more expensive. Further, federal law prohibits putting false information on loan applications. As a result, testing is almost never done unless a homebuyer who has applied for a loan files a complaint.
Freiberg, considered the nation's foremost fair housing testing expert, had to design a way to test lenders during the pre-qualification stage where borrowers give information on income, credit, and assets in order to get a pre-approval for a home loan but do not actually fill out the application.
Freiberg said his organization also tested a number of other metro New York banks and is currently working its way through the recordings.