University: Iowa State University

Researchers: Hua Sun, Lei Gao
Status: Completed, published

Research overview: 
Iowa State University researchers led by finance professors Hua Sun and Lei Gao discovered that same-sex couples often were more likely to be denied mortgages than heterosexual couples. Same-sex couples also paid marginally more in fees when they did win credit approval. “Lenders can justify higher fees if there is greater risk,” Gao said. “We found nothing to indicate that’s the case. In fact, our findings weakly suggest same-sex borrowers may perform better.”

The method: 
The researchers analyzed national mortgage data from 1990 through 2015. They also examined a smaller dataset of applicants’ work history and creditworthiness. 

To check whether the percentage of LGBT people in a neighborhood affected mortgage approval rates, Sun and Gae reviewed county-level percentages of same-sex applicants, by year. 

Sun and Gao used data from the Home Mortgage Disclosure Act, the Federal Reserve Bank of Boston and Fannie Mae Loan Performance to check whether perceived sexual orientation affected how mortgage applications were handled. They controlled for income, variations in lenders’ underwriting standards and property type.

Co-applicants with the same gender were identified as same-sex couples for the study. The researchers used Gallup and Census Bureau data of geographic distributions of LGBT adults to check the validity of their sample. 

Results:
The researchers found the approval rate for same-sex couples was 3% to 8% lower than those of heterosexual couples. Data from one of the analyses suggested same-sex applicants were 73 percent more likely to be denied.

The same-sex couples who won loan approval paid less than 0.5% more in fees annually. However, that meant a combined $86 million in fees nationally, researchers noted. 

The researchers found no evidence that same-sex couples had a higher default risk. They did, however, find that in neighborhoods with more same-sex couples, all couples appeared to have more trouble getting loans approved. That warrants more investigation, they added. 

“As far as I know, our study is the first that documents disparate lending practice to same-sex borrowers,” Sun said in an interview. “Another significance of our study is that we hope our findings will help with pushing an initiative to suggest lawmakers add sexual orientation explicitly as a protection class in the current fair-lending acts.”

The study was published in the Proceedings of the National Academy of Sciences in April http://bit.ly/2GSiHSQ. 

Conclusion:
Sun and Gao said no one has to disclose their sexual orientation to apply for a mortgage, but the perception is just as damaging when it comes to discrimination, they added.

The Fair Housing and Equal Credit Opportunity acts prohibit discrimination based on a borrower’s race, gender, marital status or religion. Neither mentions sexual orientation specifically. 

The researchers suggest that means a change in the laws is needed to ensure lenders are ignoring sexual orientation, just as they would skin color or gender, as they are considering economic factors behind mortgage decisions. 

“Policymakers need to guarantee same-sex couples have equal access to credit,” Sun said in a statement. “Using our framework, credit monitoring agencies also can take steps to investigate unfair lending practices.”

Said Gao: “Our research suggests that the business community should probably pay more attention to make fair credits available to everybody in the community. Lending decisions are supposed to be based on borrowers’ economics characteristics, not gender orientation, skin color, or other irrelevant factors. The findings suggest that it might be meaningful for the lawmakers to add a protected class here. Our research relies on public available data, and the findings call for a full-scale investigation when the banks and regulators have more data available.” 

Resources
Fair Housing Act
Equal Credit Opportunity Act