Last month, I sat down with the brilliant, top real estate coach, Dr. Lee Davenport. Our interview led to an important discussion, regarding the great importance of ethical business among in the real estate industry.
Are you noticing the same patterns as I have?
Agents and brokers — how often do you reflect on how your business is performing in ethical conduct?
For decades, I’ve had the power of granting homeownership in my hands. And, like many of you, I held all the power to approve or deny homeownership to my clients, but also gave my all to finding solutions when there were roadblocks. To this day, I find great pride in helping all families fulfill their dream of homeownership.
Yet, I noticed a huge problem in our industry from very early on in my career. When I was around 24, a Hispanic family contacted me to compare quotes on mortgage rates. A different lender in town quoted them half a percent higher than my offer with exactly the same terms. Over time, I noticed the same pattern.
It appeared to me how some lenders consistently jack up their rates to families of color. I found that the same lenders were repeatedly the culprit. I thought, “What is happening to our communities, our friends, and our neighbors if there’s a significant amount of lenders who are practicing the same, unethical tactic?”
Paying more for home ownership, based on race
Being a mortgage professional, I saw first-hand how predatory lenders are using the color of my client’s skin against them as the deciding factor in having them pay more.
The discovery of discriminatory lending rates left a sour note for me. Sure, it’s within our legal right as mortgage lenders to set our own rates. However, a handful of lenders are offering unfair rates, often racially motivated (… and that is illegal, yet very difficult to prove that it’s happening.)
Yet, there are no concrete methods for identifying which businesses engage in these discriminatory practices. So when you pull together the data of all the loans out there and put the race on top of it, you can see how communities of color are systemically paying more — a great challenge for achieving the dream of homeownership. Where is the equality in that, America?
Researchers found that, among nearly 7 million 30-year mortgages, black and Latino applicants were charged higher interest, an average of nearly 0.08%, and heavier refinance fees when compared with white borrowers — according to a recent report by UC Berkeley.
Re-imagining ethical real estate lending
While discriminatory lending is illegal, it’s very difficult to immediately prove that certain racial groups are being offered higher interest rates as there is no proper oversight.
In re-imagining a more ethical industry, I’m envisioning a three-prong solution.
First, we need more education about discriminatory lending practices at the licensee level (at the mortgage loan level.) Education is the key to bringing broader awareness and creating a paradigm shift.
Second, for the sake of fairness, we need more robust oversight of discriminatory practices. People conducting themselves within a myriad of immoral and unfair behaviors actually need to be held accountable. It’s a matter of directly addressing these lenders in order to change them. In the clearly documented protocol of law and order, there needs to be an authoritative entity protecting the rights of lenders and homeowners, all while immediately addressing behaviors, such as discriminatory lending, as a criminal offense.
Third, we need dual education — meaning the industry should enforce a rule where those who profit from mortgage lending are those who are responsible for funding education programs for the community. It’s a virtuous feat for the profiters of mortgage lending to broadly spread the know-how on the fair and just path to homeownership while reporting on the state of responsible lending.
Healthy communities need responsible businesses
We can learn from what Wells Fargo is going through right now. Known for a number of controversies, the multinational company charged higher costs to black and Hispanic borrowers. More recently, impossible sales goals coerced employees to fraudulently open more than 1.5 million bank accounts and apply for over 565,000 credit cards in customers’ names between 2011 and 2015.
As a result of lack of oversight and unfair dealings, the company had to name its third CEO within three years and watched their stock price of $50 per share drop down to $20.
This is an important argument for all in our industry to lead fair and ethical business practices. It affects your bottom line. Imagine that you are a shareholder in Wells Fargo, like Warren Buffett, and you see your share value get cut by 40%, all stemming from unethical and unfair housing market practices.
Be ethical in business: Everything you do affects your bottom line
We have to learn and share from experiences of unjust practices so that all colleagues understand and stop behaviors that are innately wrong.
Simply put, we cannot ignore the fact that there are plenty of predatory practices in place today which are taking advantage of people. From predatory lending problems to discriminatory behaviors, it’s a fact that professionals in the real estate industry play a direct and explicit role in contributing to segregated neighborhoods. It’s up to us to enact a standard of ethics and confront these issues together.
It’s your civic duty
Professionals in the real estate industry share an entrepreneurial mindset that makes them great leaders — and as entrepreneurs, it’s your civic duty to provide value to our communities. The real value that you provide, in turn, becomes profit for your business. One misstep can mean exploitation and capitalization from unjust practices. When there is a case to make a business deal, all considerations must be approached holistically. There need to be clear-cut ground rules.
Problematic practices are structural issues. It requires responsibility and integrity when individuals have enough power and autonomy that could bring about discriminatory sales practices. For example, a mortgage person can set non-uniform rates and exploit certain people and communities in order to make an unfair profit. By doing so, they are breaking principles of ethics.
Unethical business is an important challenge that all leaders and professionals must confront. Continue educating yourself and your teammates on conducting business on moral and ethical values. It requires board-level accountability where CEOs take the responsibility to lead, educate, and address any issues that may arise.
This is a call to be explicit about and reflect on which business practices are structurally and ethically wrong. Let’s prevent unfair dealings from happening.
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