If a loan applicant chooses not to disclose his or her race on a loan application, what recourse does a mortgage professional have?

When a loan applicant chooses not to disclose their race on a loan application, the mortgage professional has the option to note that the applicant has declined to answer and may select a race based on visual observation. This method aligns with the requirements of the Home Mortgage Disclosure Act (HMDA), which allows lenders to collect demographic information in a way that does not hinder the application process.

In cases where the applicant does not self-identify their race, lenders are permitted to make a visual observation or rely on other information to classify the applicant’s race, ensuring that they still comply with federal regulations while processing the application. This practice helps maintain a complete demographic database for reporting purposes while reducing the chances of discrimination, which is crucial in fostering fair lending.

Other suggested recourses, such as informing the applicant of implications of fraud warnings or stating that the application is incomplete due to lack of information, do not align with federal regulations on fair lending practices and could potentially mislead or alienate applicants. Providing an adverse action notice would be premature since the application can still be processed regardless of the race disclosure.