For years, consumer watchdog groups have pointed to studies showing that mortgage lenders are more likely to give high-interest-rate home loans to minority borrowers than to white borrowers. Legislators and industry trade groups have grappled with fixing the inequities, but a Southern California mortgage broker says his software solves the problem.
When a prospective borrower submits an online mortgage application to Mortgage Grader (www.mortgagegrader.com), the company strips away much of the personal information that a lender might use to "redline" or discriminate against a borrower before it forwards the application to its participating lenders.
Lenders who work with Mortgage Grader - there are about 15, including some big brands like Chase and Washington Mutual - offer loan rates and terms to borrowers based only on the credit score and financial information on the application. The borrower's name, Social Security number and exact property address are not given to the lender until the borrower has chosen the loan he or she wants.
"We force the loan to be priced before the curtain is raised," and the lender and the buyer get introduced, said Jeff Lazerson, Mortgage Grader's president and a longtime Orange County loan broker. The software matches borrowers to the least expensive loan that suits their circumstances, he said, without the possibility of predatory practices, redlining, or discrimination based on ethnicity or gender.
"There's no legal requirement for lenders to offer a fair loan or their best loan for the consumer," Lazerson said. Instead, many mortgage brokers "take the borrower's temperature ... to see how much they can get away with," he said.
But lenders who work with Mortgage Grader are competing for its customers, creating an incentive for them to deliver fair rates based only on the customer's financial profile. Participating lenders offer loans for both prime and subprime borrowers. The nature of the software means that a borrower who can qualify for a prime loan won't be "down-streamed" into a subprime loan just so the lender can charge a higher interest rate.
"All the lender should care about is if the borrowers have similar credit history, they should get a similar deal," Lazerson said.
Mortgage Grader, based in Laguna Niguel, charges fees based on the customer's loan amount, and informs customers upfront about what the total amount will be.
On a $500,000 loan, the company would charge $5,500 - that's 1 percent of the loan amount, plus a $500 processing charge. That's a smaller percentage than most loan brokers get from each loan they do.
The Mortgage Grader premise is "responding to a definite problem," said Kevin Stein, associate director of the California Reinvestment Coalition, which has reported on the inequities experienced by borrowers of different ethnicities.
"To the extent that this is trying to strip away opportunities for discrimination to occur, then it's positive," he said. Lenders should offer the most suitable loans for their customers, he said, but they don't always do so. "It's kind of an unfortunate situation we're in where someone has to develop a product to make happen what's supposed to happen."
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