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Do mortgage lenders discriminate against minority borrowers, and, if so, how is that possible in an age of computerized, nearly automatic underwriting?

Those are the two questions the authors of a recently released study set out to answer. Their findings? Yes, there is some discrimination and it can be based on something as simple as perception.

The three-year study, led by Andrew Hanson, associate professor of economics at Marquette University, used email correspondence to test mortgage loan originator (MLO) responses to borrower queries. Hanson and his associates sent two identical emails to more than 5,000 lenders, one from a person with a “white” sounding name and another from a person with a “black” sounding name.

“White” names included Maxwell Baker, Spencer Miller and Jake Krueger. “Black” names included Jamal Washington, Terrell Banks and DaQuan Booker. Names were categorized by examining New York City birth records and determining which race the name was more likely to be associated with it. The emails also included information about the borrower’s low credit score, high credit score or did not contain credit score information at all.

After sending out the letters, Hanson and his colleagues tracked whether and how the MLOs responded.

“Our results show that MLOs discriminate on the basis of race and treat clients differently by their reported credit score,” the study conclusion said. “We find that on net, 1.8% of MLOs discriminate by not responding to inquiries from African-Americans while responding to inquiries from white clients. We find larger net response differences across credit score types, with 8.5% of MLOs responding to clients in our high-credit-score group while not responding to clients who do not report a credit score.”

Hanson and his colleagues also found that MLOs offer more details about loans and are more likely to send follow-up correspondence to “white” borrowers.

“Overall, the effect of being African-American on MLO response is roughly the equivalent to the effect of having a credit score that is 71 points lower,” the study concluded.

Credit scores obviously are important when it comes to applying for a loan. If you have a bad credit score, reviewing your free annual credit reports can help you identify negative items and bad-credit habits you may want to break. (You can go here to learn how to dispute any errors you may find on your credit report.)

No matter what’s in your credit past, focusing on good behaviors going forward can help you improve your credit. It takes time, but rebuilding your credit is doable, though a long history of problems can make it more challenging. As you work on making payments on time and keeping your credit card balances low relative to their limits (some of the most important factors in credit scoring), you can see how your score changes by getting two free credit scores every 30 days on Credit.com.

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