Latest Data Shows Continuing Disparity in CU Mortgage Lending

Minorities were twice as likely to be denied a loan at Navy Federal Credit Union and other large credit unions last year than non-Hispanic whites, recently released federal home lending data showed.

Navy Federal was sued last year in a class action lawsuit that alleges discrimination in lending against minorities based on Home Mortgage Disclosure Act (HMDA) data through 2022. Navy Federal has denied the suit’s allegations.

A CU Times analysis of 2023 HMDA data found Navy Federal Credit Union, the nation’s largest, originated 10,133 first-mortgage purchase loans to borrowers who were Black, Hispanic or another minority, while it denied the same type of loans to 4,676 applicants. This equals a denial rate of 31.6%. Denial rates are calculated by dividing the number of denials (in this case, 4,676) by the number of originations plus denials (in this case, 10,133 plus 4,676, or 14,809).

By comparison, Navy Federal originated 13,912 purchase loans and denied 2,732 applications to non-Hispanic white applicants — a denial rate of 16.4%.

Dividing the denial rate for minorities by the denial rate for whites showed minorities were 1.92 times more likely than whites to be denied a first-mortgage purchase loan.

The result was little different than what was found by a Dec. 14 CNN report that was based on HMDA data through 2022. That report was cited in a class action lawsuit filed three days later on behalf of two African Americans who were denied mortgages in 2023 by Navy Federal. The suit alleged the credit union violated the race discrimination provisions of the Equal Credit Opportunities Act and the Fair Housing Act.

The CU Times analysis found similar disparities for 2021 and 2022 as the CNN report, and showed the disparity continued through 2023.

In response to CU Times’ findings from 2023 data, Navy Federal provided a statement saying HMDA data lacks “industry-wide considerations in the mortgage underwriting process,” including credit scores, income verification and property valuations.

“Navy Federal remains committed to expanding economic opportunity and access to credit for our diverse community of members,” it said.

“At Navy Federal, a recent external review of our mortgage lending by a leading civil rights attorney found no race-based decision making in our mortgage underwriting,” it said. “Navy Federal treats all our members fairly, regardless of their race or background.”

Navy Federal also pointed to a study of 2022 HMDA data by the National Community Reinvestment Coalition that showed it was the third-largest lender to Blacks for first- or second-lien home mortgages among the 50 largest mortgage lenders. In 2022, Navy Federal originated 16.8% of its 70,976 loans to Blacks.

North Carolina’s State Employees’ Credit Union led by originating 21.4% of its 40,611 loans with Blacks in 2022, followed by Carrington Mortgage Services of Anaheim, Calif., with 19% of its 18,295 loans.

The CU Times analysis also found the disparity in denial rates at Navy Federal haven’t been much different when compared with 30 other large credit union lenders over the past three years.

However, Navy Federal has a higher denial disparity than nine of the 10 largest banks and other for-profit mortgage lenders.

The group was picked based on 2022 HMDA data for the 10 lenders with the highest number of originations of home loans, generating nearly 22% of that year’s mortgages and home equity lines of credit, according to Bankrate, a consumer financial services company based in New York. Rankings using 2023 data are not easily available.

CU Times analyzed 2023 data for the for-profit lenders with the same methods it used for credit unions.

The CU Times analysis found the corporate lenders denied 8.7% of purchase first mortgages to whites and 14.1% to minorities in 2023, meaning minorities were 1.63 times more likely to be denied than whites.

LoanDepot had the greatest disparity. The online lender based in Irvine, Calif., denied 7.3% of loans to whites and 14.9% to minorities, making minorities 2.05 times more likely to be denied than whites. The disparity ratios for the other nine ranged from 1.81 to 1.30.

The data also showed disparities in denial rates in 2023 rose slightly from 2021 and 2022 for both Navy Federal and the other 30 credit unions.

The 30 credit unions were selected based on NCUA data showing the 25 credit unions that were the largest originators of first-mortgage residential loans last year plus five others that were in the top 25 in 2021 but not in 2023.

The other 30 credit unions had denial rates of 18.6% for minorities and 9.5% for whites last year, showing minorities were 1.95 times more likely to be denied.

Last year’s 1.92 ratio of minority denials at Navy Federal was up from 1.76 in 2021 and 1.84 in 2022. The 2023 ratio of 1.95 at the other 30 credit unions was up from 1.83 in 2021 and 1.91 in 2022.

Differences between Navy Federal and the other 30 credit unions include:

• Navy Federal’s denial rates dropped by 2 percentage points in 2023, while they rose by 3 to 4 percentage points at the other 30 credit unions.
• While originations were down 15% at Navy Fed last year, its denials fell 23%. At the other 30 credit unions, applications fell 19% but the number of denials actually rose 2%.

Navy Federal acknowledged last year’s tough lending conditions in its comment to CU Times. “Increased interest rates, a persistent rise in home prices, and limited inventory made 2023 a challenging year for the housing market.”