The secret bias hidden in mortgage-approval algorithms

by Joseph K. Clark

The new four-bedroom house in Charlotte, North Carolina, was Crystal Marie and Eskimos McDaniels’ personal American dream, the reason they had moved to this Southern town from pricey Los Angeles a few years ago.

There is a lush, long lawn, 2,700 square feet of living space, a neighborhood pool, and a playground for their son, Nazret. All for $375,000.

Prequalifying for the mortgage was a breeze. They said they had saved much more than they would need for the down payment, had excellent credit — scores of 805 and 725 — and earned roughly six figures each. She was in marketing at a utility company and Eskimos representing a pharmaceutical company. The monthly mortgage payment was less than they’d paid for rent in Los Angeles for years.

mortgage-approval algorithms

They were scheduled to sign the mortgage documents on Aug. 23, 2019 — a Friday — and we’re so excited to move in they booked movers for the same day.

The Wednesday before the big day, the loan officer called Crystal Marie, and everything changed; she said: The deal wasn’t going to close.

The loan officer told the couple he had submitted the application internally to the underwriting department for approval a dozen, 15, maybe 17 times, getting a “no” each time. The couple had spent $6,000 in fees and deposits — all nonrefundable.

“It seemed like it was getting rejected by an algorithm,” she said, “and then there was a person who could step in and decide to override that or not.”

She was told she didn’t qualify because she was a contractor, not a full-time employee — even though her boss told the lender she was not at risk of losing her job. Her co-workers were contractors, too, and they had mortgages.

Crystal Marie’s co-workers are white. She and Eskimos are Black. “I think it would be really naive for someone like myself to not consider that race played a role in the process,” she said.

An investigation by The Markup had found that lenders in 2019 were more likely to deny home loans to people of color than to white people with similar financial characteristics — even when we controlled for newly available economic factors the mortgage industry for years has said would explain racial disparities in lending.


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