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Same-Sex Couples Face Discriminatory Lending Practices

Members of the LGBTQ community face the same barriers all others face when trying to buy a home: high prices, rising loan costs and saving for a downpayment.

But a new academic study published recently in the Proceedings of the National Academy of Sciences (PNAS) found that the LGBTQ community still faces discriminatory practices by at least some lenders.

The research found that same-sex couples are significantly more likely to be denied mortgages than those of different sexes of the same means and financial worthiness. When they were approved, moreover, they were saddled with worse terms.

Same-sex couples were 73 percent more likely to be rejected than heterosexual couples, according to an Iowa State University Ivy College of Business analysis. The study looked at home loans granted over a quarter of a century between 1990 and 2015.

On average, those same-sex couples who passed muster paid between 0.02 percent to 0.2 percent higher interest rates than heterosexual borrowers. The difference, the authors said, adds up to as much as $8.6 million to $86 million a year.

The report, “Lending Practices to Same-Sex Borrowers,” argued that the data provides further evidence for the need for an update of civil rights legislation. The House, in mid May, approved legislation that updates the Civil Rights Act of 1964 by explicitly extending the ban on discrimination of classes of people to the LGBTQ community in areas that include housing, credit, employment, public education, federal funding and the jury system.

The National Association of Realtors (NAR) is among nearly 500 associations who have supports the legislation.

Last year, the National Association of Gay and Lesbian Real Estate Professionals (NAGLREP) celebrated the 50th anniversary of the Fair Housing Act (FHA) — even though the LGBTQ community was still not explicitly protected from discrimination under the law. The group has 2,300 members in 34 chapters nationally.

A survey that it conducted in partnership with Freddie Mac found that, among other concerns, 20 percent of potential LGBTQ buyers fear not being approved for a mortgage, and 13 percent worry they will not be offered the lowest available rates.

The authors of the PNAS study said that their findings indicate a need to include sexual orientation as a protected class in both the FHA and the Equal Credit Opportunity Act. Those laws prohibit discrimination on the basis of race, color, religion, sex or national origin but do not specifically mention sexual orientation.

“Policymakers need to guarantee same-sex couples have equal access to credit,” said co-author Hua Sun, Ivy College of Business’ associate professor of finance. “Using our framework, credit monitoring agencies also can take steps to investigate unfair practices.”

Co-author Lei Gao, an assistant professor at the school, pointed out that while lenders are permitted to charge different rates for different levels of risk, the pair found no evidence to support the dichotomy of fees charged between same-sex couples and their heterosexual counterparts. “In fact,” he said “our findings weakly suggest same-sex borrowers may perform better.”

Because borrowers are not required to disclose their sexual orientation, the researchers identified same-sex couples as co-applicants of the same gender and used data from the Census Bureau and Gallup to verify their method.

The authors’ model also predicted that had the same-sex couples who were rejected by lenders been heterosexual, their turndown rate would have been something like 11 percent, slightly less than half what it actually was.

Furthermore, they found that the more same-sex couples lived in a particular neighborhood, the more difficult it was to obtain financing, not just for the LGBTQ community but for everyone.

This, despite the finding that LGBTQ families are often better credit risks. While both LGBTQ and heterosexual communities default about equally, same-sex couples are more likely to pay off their loans more quickly, or at least make their payments earlier, the study found.

“This pattern of brokerage is discriminatory, consequential, irrational and has a negative impact that goes beyond the targeted group,” said Professor Peter Hegarty of the University of Surrey’s Department of Psychological Sciences in the United Kingdom in a commentary accompanying the PNAS article. “San and Gao do not use the word, but this looks exactly like the behavioral expression of what psychologists call prejudice.”

Virginia Sen. Tim Kaine (Democrat) and Maine Sens. Susan Collins (Republican) and Angus King (Independent) have introduced bipartisan legislation that would add gender and sexual orientation to the list of protected classes under the FHA.

“All Americans deserve fair and equal opportunity in the sale, rental or financing of housing,” Collins said.

“No one should be denied access to this vital resource because of who they are,” said King. The fact that gender and sexual discrimination is not banned under the law is “wrong, plain and simple.”

Currently the ownership rate in the LGBTQ community is at 49 percent versus 65 percent for the country as a whole.

Members responding to NAGLREP’s poll about homeownership in the LGBTQ community have a wide range of opinions about when those rates of ownership will rise. Forty-three percent believe that the rate will reach at least 55 percent in two to three years, and another 43 percent believe that it will take five to 10 years to get there.