Is it legal for a lender to demand race information before processing a loan?

-- Nirmala Kurup Bauer (nirmalabauer@aol.com), November 05, 2001

Answers

To be fair, it depends. It's definitely legal for the lender to ask. In some circumstances, it's required. But not in all circumstances, such as when the application is gathered by phone. This text is from the FFIEC's latest national HMDA report: Missing Information on Race and Ethnicity

Under HMDA, for applications taken entirely by telephone a lender is not required to collect information on an applicant's race or ethnicity, and gender. For applications taken by mail or electronic means (such as by facsimile or the internet), a lender must request the information, but an applicant is not required to provide it.

The incidence of applications and loans reported without data on race or ethnicity has grown since 1993. From 1993 to 2000, the proportion of home loan applications of all types with missing race or ethnicity data increased from about 8 percent to about 28 percent (table 8).2 For home purchase loans, the proportion of applications missing race or ethnicity data is lower but still has grown substantially. In 1993, about 4 percent of the home purchase loan applications were missing race or ethnicity data; by 2000, the proportion was about 15 percent, and involved roughly 1 million applications. For home purchase loans originated, 11 percent lacked race or ethnicity data in 2000, up from 3 percent in 1993.

The increase in applications missing data on race and ethnicity is due in part to increased proportion of all home purchase loan applications reported by institutions specializing in manufactured home lending. These institutions frequently use indirect methods for soliciting applications, which are frequently missing race and ethnicity data. For example, preliminary estimates for 2000 suggest that nearly 30 percent of the conventional home purchase loan applications filed by lenders specializing in manufactured home lending did not include race or ethnicity data. With respect to the increase in such applications from 1993 to 2000, preliminary estimates suggest that roughly 30 percent of the increase is attributable to lenders specializing in manufactured home lending.

-- Bill Dedman (Bill@PowerReporting.com), November 27, 2001.

As a loan officer I am correct in stating that it is not legal to demand race information to process an application. Lenders can ask for the information for HMDA reporting after the loan is processed, but not before. I do loans everyday, and we do not ask for race information until closing. Your race is not important to the loan process that is why it is not necessary to ask this question. What is more important is credit history and ability to pay back the loan.

-- Albert Moyer, Jr. (amoyer@sprynet.com), November 28, 2001.