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Same-sex couples face lower loan approval rates, higher fees

A new Iowa State University study suggests that same-sex couples are facing discriminatory conditions when it comes to acquiring mortgages, including lower approval rates and higher financing fees.

SameSexCoupleThe study, conducted by the school’s Ivy College of Business, evaluated U.S. mortgage data from 1990 to 2015, a sample set of more than 30 million loans. The findings were stark: Same-sex couples were 73.1 percent more likely to be denied for a mortgage than heterosexual couples with comparable credentials.

Same-sex couples who obtained a mortgage paid more in interest and financing fees despite no evidence that they carried a higher risk of default. And although the difference averaged 0.2 percent for all fees, that can add up over the life of a loan. In fact, across all mortgages to same-sex couples, these charges totaled $86 million annually.

“Lenders can justify higher fees, if there is greater risk,” said Lei Gao, one of the study’s co-authors and an assistant professor of finance at Iowa State. “We found nothing to indicate that’s the case. In fact, our findings weakly suggest same-sex borrowers may perform better.”

Data from the Home Mortgage Disclosure Act, the Federal Reserve Bank of Boston and Fannie Mae Loan Performance was used in the study. Loan applicants aren’t required to disclose sexual orientation, but the study found that “perception is just as damaging in terms of discrimination.” Co-applicants with the same gender were identified as same-sex couples for the purposes of the study, using geographic LGBTQ distribution data from Gallup and the U.S. Census Bureau to verify identification methods.

Same-sex couples in the study carried extremely similar profiles to their opposite-sex counterparts. They had a marginal advantage in income, making $104,000 compared to $97,000 for heterosexual couples. They did, however, carry slightly lower credit scores of 750, while heterosexual couples had an average score of 754.

Gao and co-author Hua Sun, an associate professor of finance at Iowa State, believe their findings illuminate the need to include sexual orientation under federal anti-discrimination lending laws. Sexual orientation doesn’t fall under the protection of the Fair Housing Act or the Equal Credit Opportunity Act.

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


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