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Senate Banking Committee Members Address Navy Federal Over Racial Lending Disparities

U.S. Senators Sherrod Brown, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, along with his colleagues, Sens. Ron Wyden, Chair of the Senator Finance Committee; Jack Reed, Chair of the Senate Armed Services Committee; Raphael Warnock; Tina Smith; John Fetterman; Tim Kaine; Chris Van Hollen; Catherine Cortez Masto; and Bob Menendez have called on the U.S. Department of Housing and Urban Development (HUD) and the Consumer Financial Protection Bureau (CFPB) to review the concerning gap in mortgage approval rates between white applicants and Black and Hispanic applicants at Navy Federal Credit Union reported in December.

Navy Federal, one of the nation’s largest credit unions, has more than 13 million members, including servicemembers of all military branches, veterans, Department of Defense civilian employees, and their relatives. Recent reports found that, after controlling for more than a dozen variables, Navy Federal was more than twice as likely to deny a loan from a Black applicant as a white applicant; Hispanic applicants were around 85% more likely to be denied compared to white applicants.

“When denial rates for Black and Hispanic applicants at one institution appear to be drastically higher than the national average and higher than their rates for similarly situated white borrowers, it raises questions about whether its mortgage lending practices comply with federal fair housing and fair lending laws and regulations,” the Senators wrote in their letter. “Navy Federal’s members have made countless sacrifices in their service to our country. We must do all we can to ensure illegal barriers are not placed on their path to homeownership.”

Navy Federal—who primarily lends to military servicemen, veterans, and their families—approved more than 75% of borrowers who identified as white for new conventional home mortgage purchases in 2022 (the last year with published data from the Consumer Financial Protection Bureau), but less than 50% of African American borrowers who applied for the same type of loan were approved.

While the racial lending gap is nothing new among banks due to long held biases even after new legislation and programs within banks to offset these sentiments, the 29-percentage point in Navy Federal’s approval rate was the largest among the top 50 mortgage lenders in the country.

Worse, the disparity remains even among White and Black applicants when they reported similar income and debt-to-income ratios. Notably, Navy Federal approved a slightly higher percentage of applications from White borrowers making less than $62,000 a year than it did of Black borrowers making $140,000 or more.

A further analysis made by CNN found that Black applicants were more than twice as likely to be denied by Navy Federal than whites, even when a selection of more than a dozen different lending metrics were the same among the two groups.

The letter, addressed to HUD Secretary Marcia L. Fudge and CFPB Director Rohit Chopra, noted, “The Fair Housing Act and ECOA prohibit discrimination in housing and in mortgage lending. While it is appropriate for a lender to deny a mortgage application when the loan will not be sustainable for the borrower, those decisions are made based on a borrower’s financial ability to repay the loan. It should go without saying that a person’s race, or any other protected characteristic, should never be a factor. When denial rates for Black and Hispanic applicants at one institution appear to be drastically higher than the national average and higher than their rates for similarly situated white borrowers, it raises questions about whether its mortgage lending practices comply with federal fair housing and fair lending laws and regulations.”

Click here to read the full letter from members of the Senate Banking Committee to HUD and the CFPB.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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