Evidence of Discrimination as Same-Sex Borrowers Are 73% More Likely to Be Denied Than Heterosexual Couples

One of the first steps couples take when buying a home is to apply for a mortgage, but a recent study indicated that lenders are less likely to approve same sex-couples.

The analysis of the national mortgage data from 1990 to 2015, the researchers in Ivy College of Business, Iowa State University, they found that the approval rate for same-sex couples was three to eight percent lower. Also in the study was the inclusion of a smaller dataset with more detail about the creditworthiness and work history of the applicants. Based on this data, same-sex applicants were 73 percent more likely to be denied than heterosexual couples.

Same-sex couples that get approval paid more in interest and fees. Hua Sun and Lei Gao, associate and assistant professors of finance, respectively, and also co-authors of the study, said that the difference in finance fees averaged less than .5 percent, but when they combined it, it added up as much as $86 million annually. The Proceedings of the National Academy Sciences published the research that found no evidence that same-sex couples had a higher default risk.

Gao explained that if there is a greater risk, lenders can justify higher fees. He said that they found no indicator to such a case. Their findings, indeed, weakly suggest same-sex borrowers may perform better.

Though there is no obligation for mortgage applicants to disclose their sexual orientation, the researchers said perception is just as damaging in terms of discrimination. The Fair Housing and Equal Credit Opportunity Acts frown upon discrimination based on a borrower's race, gender, marital status, or religion, but neither explicitly lists sexual orientation.

Also in the researchers' findings, it illustrated a need for change to make the law far for everyone. Decisions of loan must be based on fundamental economic factors, not skin color, sexual orientation or gender. Sun said that there would be a limit in potential discrimination by making sexual orientation a protected class.

Furthermore, he explained that policymakers need to guarantee same-sex couples have equal access to credit. With the aid of their framework, credit monitoring agencies also can take steps to investigate unfair lending practices.

The study used data from the Home Mortgage Disclosure Act, the Federal Reserve Bank of Boston and Fannie Mae Loan Performance to run the test on whether perceived sexual orientation affected mortgage approval, cost, and performance. Through this dataset, the researchers were able to validate their discoveries and control for factors such as income, variations in lenders' underwriting standards and property type which may influence approval rates.

The study identified co-applicants with the same gender as same-sex couples. The researchers utilized Gallup and Census Bureau data of geographic distributions of LGBT adults to verify their identification strategy and reported an excellent matching quality.