Natick-based Middlesex Savings Bank is one of the state’s lenders striving to promote equal treatment of loan applicants by regularly training its employees and putting each application through a second review before it can be denied.

A black woman recently visited a Boston-area bank, seeking a mortgage. She was told her credit score of 670 was below average and the closing fee would be $8,000 to $9,000. When the woman still appeared interested, the bank representative told her the institution mainly focused on commercial lending, and residential mortgages weren’t really its specialty.

However, when a white customer sought a home loan from the same bank, no one at the bank mentioned a preference for commercial loans. The white customer was told the closing fee would be $6,000 less than the black customer. The white customer’s credit score, although lower than the black woman’s score, was never brought up as an issue.

The incident, along with other similar occurrences showing discrimination in Massachusetts’ mortgage market, was documented by the Fair Housing Center of Greater Boston.

According to a study slated to be released soon by the FHCGB, examples of discrimination are prevalent in the local mortgage scene. The report, titled “A Report on Racial and Ethnic Discrimination in the Greater Boston Mortgage Lending Market,” found 45 percent of potential homebuyers of color were put at a disadvantage when seeking a mortgage.

The study, the first of its kind by the center, was geared toward gauging how prospective borrowers are received during their initial contact with lenders. Prior studies by FHCGB have examined similar disparities in treatment of prospective customers by real estate professionals in the rental and home sales markets. Both of those studies found some discrimination occurred in 47 percent of cases.

“We didn’t expect it, but we might have suspected it,” David J. Harris, executive director of FHCGB, said of the latest study’s findings. “This has been a problem historically. It’s not as bad as it used to be. It’s not formal redlining.”

Rather than institutional and systematic, the incidents seem to be case-specific, albeit happening with greater regularity than the study’s authors had anticipated, Harris said. Disparity in treatment seems to be attributable to the decisions of the individuals involved rather than corporate philosophies or policies.

Kathy Tullberg, manager of the Massachusetts Community & Banking Council, said her organization has been looking at issues surrounding discrimination and real estate for over a decade. Several studies have been conducted over the years; some indicated progress is being made, but several recent studies suggest the issue discrimination and different treatments of buyers and borrowers has become a more acute problem, she said.

“The disparity ratio [between treatment of white and minority borrowers] had been getting better through the mid ’90s; now it’s going [in the wrong direction],” said Tullberg.

But Tullberg said the reasons for the setback are not readily apparent.

“I think if you talked to any lender they would say they would be crazy to turn down a qualified applicant. And I believe them.”

However, Tullberg said she does believe that there is a problem and the latest study released by FHCGB provides confirmation of its existence.

Elusive Causes
In the FHCGB study, 20 sets of testers were sent to banks and local loan offices between October 2005 and January 2006. White and minority applicants were sent to the same locations seeking home loan information on a $475,000 mortgage with a $25,000 down payment. Each time the minority applicant had a better credit score, but it did not appear to work in their favor compared to the treatment and information given to white applicants.

The study looked at different attitudes and behaviors of mortgage professionals when dealing with people of different ethnicities. The examples of discrimination documented in the study range from differences in quoted closing fee and interest rates to the levels of friendliness and service exhibited on the part of the loan professional. None of the non-white participants in the study received follow-up letters or calls from lenders, but almost half of the white testers were contacted after their first visit. White testers also received gift certificates to use toward their closing costs in addition to substantially lower closing cost quotes.

While the study examined only the first step of the mortgage process, it concludes that quotes with high closing costs would likely discourage minorities from trying to buy a home.

“And lenders know that closing costs are a big factor in consumers’ choice of lenders; that is why they offer specials like certificates for money off closing fees. If such specials are made available to white loan seekers but not home seekers of color, the lender is pursuing white customers while allowing non-white potential customers to walk away,” according to the research.

The Massachusetts Affordable Housing Alliance provided a list of the top 25 mortgage lenders in terms of loan volume in the greater Boston area. FHCGB tested at all of those firms that had local brick-and-mortar offices, as well as several companies doing large amounts business but reputed to have low customer satisfaction rates to increase the sample sizw. In the end, 20 companies – 10 banks and 10 mortgage firms – were chosen for the study, and almost half of failed to deliver equal treatment.

Harris said the sample size may be small, but he believes it is indicative what is going on generally in the marketplace. He said had the study tested 100 more companies, he would expect to see similar results.

“We do an audit like this to get a sense get a sense as to what is happening but also to start a dialog,” said Harris. “The strong message is a crying need to ensure all of the employees give equal information. People sometimes make assumption based on characteristics. There was a greater willingness to work with whites with lower credit scores.”

“You are in such a competitive market, I don’t know why anyone would resort to that,” said James Dougherty, executive director of the Massachusetts Mortgage Association.

At the same time, Dougherty acknowledges that every time a study such as this one is performed they nevertheless uncover what appears to be discrimination.

“Very frankly, it’s pretty consistent. I’ve seen other studies like this that show the same type of trends. The problem is that the data that we are looking at doesn’t tell us anything about why,” said Tullberg.

Tullberg said the purpose of such lending studies is to tell the industry what is happening, but more needs to be done to discover the root causes and implement corrective measures.

“Clearly, the study indicates ongoing issues,” said Kevin F. Kiley, executive vice president and chief executive officer of the Massachusetts Banks Association.

Kiley is part of the Fair Lending Task Force, which includes representatives from numerous industry groups in Massachusetts. He said the task force is currently working on a guide for best practices and to ensure fair lending is being properly carried out. It is expected to be released in the next few months.

“At the end of the day it will provide a blueprint for the industry on how to move forward with this,” said Kiley.

Dana Neshe, senior vice president of Natick-based Middlesex Savings Bank and a former member of the Fair Lending Task Force, said when the task force got together a year-and-a-half ago, members viewed it as a chance to reexamine relevant issues from an industry-wide prospective, incorporating a broad cross-section of industry practitioners. She said the goal was to start a dialog and look at best practices for lenders.

Middlesex regularly trains its employees in fair lending practices, said Neshe. It performs a second review of loan applications that are initially marked for denial before giving the customer a final decision. Neshe said second reviews have become more popular in the lending community as a way for companies to double-check themselves to make sure fair lending practices are being carried out.

“I think it’s been pretty widely accepted throughout the industry,” she said.

Middlesex Savings also analyzes its own statistics for loan applications, examining the demographics of its applicant pool and monitoring approval and denial rates, said Neshe.

“We take a look at our data the same way the FDIC [Federal Deposit Insurance Corp.] would,” she said. “We track our own trends – where we are lending or how we are lending. Fair lending is really good for business. We look at it [carefully because] we are in the business to make loans.”

According to Neshe, there has been some discussion about lenders conducting their own matched-pair testing similar to what was performed in the latest study. However, such testing can be costly and companies may be reluctant to speak freely about the results. Neshe said matched-pair testing would most likely be performed if a company suspected unfair lending or discrimination was taking place. She said second reviews and analyzing data would probably come first.

Harris said one of the biggest snags in the effort to promote fair lending is that many of the people who run mortgage companies and banks might not recognize that it happening. His study looked only at the first interaction of borrowers with a company, and irregularities at that state are something that, without such testing, could easily slip under the radar.

“In all likelihood many of the lenders weren’t aware of this. One of the problems is they don’t know this is happening. Most of them [examples of discrimination] are very subtle,” said Harris. “Part of the purpose of doing it as an audit is to inform the industry. That’s the spirit in which we release this report.”