Navy Federal Credit Union rejected more than half its Black conventional mortgage applicants last year

CNN
 — 

The largest credit union in the US has the widest disparity in mortgage approval rates between White and Black borrowers of any major lender, a trend that reached new heights last year, a CNN analysis found.

Navy Federal Credit Union, which lends to military servicemembers and veterans, approved more than 75% of the White borrowers who applied for a new conventional home purchase mortgage in 2022, according to the most recent data available from the Consumer Financial Protection Bureau. But less than 50% of Black borrowers who applied for the same type of loan were approved.

While many banks also approved White applicants at higher rates than Black borrowers, the nearly 29-percentage-point gap in Navy Federal’s approval rates was the widest of any of the 50 lenders that originated the most mortgage loans last year.

The disparity remains even among White and Black applicants who had similar incomes and debt-to-income ratios. Notably, Navy Federal approved a slightly higher percentage of applications from White borrowers making less than $62,000 a year than it did of Black borrowers making $140,000 or more.

A deeper statistical analysis performed by CNN found that Black applicants to Navy Federal were more than twice as likely to be denied as White applicants even when more than a dozen different variables – including income, debt-to-income ratio, property value, downpayment percentage, and neighborhood characteristics – were the same.

The Virginia-based Navy Federal, which was originally founded in 1933 to serve Navy employees, is now open to all members of the armed forces, Department of Defense personnel, veterans, and their relatives. It has about 13 million members and more than $165 billion in assets.

Bob Otondi, a Black business owner in Texas who was denied a mortgage by Navy Federal in 2021 – and then approved by another lender in about two weeks – said the rejection “didn’t make any sense at all.”

“I thought it could have been racial discrimination,” he told CNN, “but I could never prove it.”

In total, the credit union rejected about 3,700 Black applicants for home purchase mortgages last year, potentially blocking them from homeownership just as interest rates spiked. And Navy Federal also approved Latino borrowers at significantly lower rates than White borrowers.

View this interactive content on CNN.com

In a statement, Navy Federal spokesperson Bill Pearson defended the credit union’s lending practices.

“Navy Federal Credit Union is committed to equal and equitable lending practices and strict adherence to all fair lending laws,” Pearson said. “Employee training, fair lending statistical testing, third-party evaluations, and compliance reviews are embedded in our lending practices to ensure fairness across the board.”

Pearson said that CNN’s analysis “does not accurately reflect our practices” because it did not account for “major criteria required by any financial institution to approve a mortgage loan.” Those factors included “credit score, available cash deposits and relationship history with lender,” he said.

But that information is not available in the public mortgage data. Navy Federal declined to release additional data about its loans to CNN that included borrowers’ credit scores or other variables. In addition, most of the Navy Federal applications that were denied are listed as being rejected for reasons other than “credit history.”

By some measures, Navy Federal has been successful at lending to minority borrowers: A fourth of its conventional mortgage applicants are Black, and about 18% of the conventional loans it originated went to Black borrowers – a larger portion than almost any other large lender.

But because of the large racial disparity in Navy Federal’s approval rates, even though more Black borrowers are applying for conventional mortgage loans from the credit union, most of them are getting denied.

Experts in mortgage lending and advocates for fair housing said that the racial gaps in Navy Federal’s approval rates were surprisingly large and raised questions about the institution’s lending practices. Lisa Rice, the president and CEO of the National Fair Housing Alliance, an advocacy group, said the racial gaps in Navy Federal’s lending identified by CNN were “some of the largest I’ve seen.”

“That is a quite stark disparity,” Rice said. “It’s unusual for us to see instances where the lender denies more loans than it approves.”

Experts said that Navy Federal’s racial disparities appeared to be an especially extreme example of a larger national problem. The credit union’s gap between White and Black approval rates has jumped significantly in recent years – and among all lenders, the racial approval rate gap has also grown.

More broadly, the gap in homeownership rates between White and Black Americans is larger today than it was before the Civil Rights era – and it’s a key driver of wealth disparities between White and Black families.

Navy Federal member says rejection left him feeling shocked and hurt

When Bob Otondi went house hunting in the summer of 2021, he immediately knew when he found his “dream house.” The three-bedroom home in a lakeside neighborhood of a Dallas suburb had an open kitchen, an expansive backyard with a pool, and – most importantly – it was in a great school district where Otondi’s son had long aspired to attend high school.

Otondi was thrilled when his bid for the home was approved, and expected that his mortgage application with Navy Federal would be smooth sailing. The relative of Navy servicemembers, Otondi had been a Navy Federal customer for years. The credit union had pre-approved him, he said he’d successfully paid off several previous Navy Federal vehicle loans, and he had budgeted a downpayment of more than 20% of the home’s value.

But then, just weeks before he was scheduled to close on the purchase, Otondi got bad news: Navy Federal was denying his application. The credit union told him in a form letter that it had concluded his income was not high enough to account for his debts.

Otondi said the last-minute denial didn’t make sense. According to documents he provided to CNN, he was making more than $100,000 a year from his logistics business and had a credit score above 700. He said he didn’t have significant debts.

In the heat of the pandemic-era housing market, Otondi feared he would lose the home. “I was stunned, I was shocked, I was hurt,” he said. He had been driving by the house with his son and daughter every week, and the kids had already planned out decorations for their rooms. “To go back home and tell them, ‘guys, we lost the house?’ I mean, devastating,” Otondi said.

But Otondi’s realtor, Angela Crescini, connected him with another mortgage lender who approved him for a loan in about two weeks – and the purchase went through.

“There was no real reason he shouldn’t have gotten the loan” from Navy Federal, Crescini said. “How can one lender get a loan done within 15 days and this other one couldn’t at all? It didn’t ring right to me.”

Pearson, the Navy Federal spokesperson, declined to comment on Otondi’s denial, saying that “our members’ personal and account information are private and confidential.”

As he sat in the airy living room of the three-bedroom home last month, Otondi said he was still frustrated by the mortgage denial. He said he submitted complaints to the Consumer Financial Protection Bureau – the federal agency that oversees consumer lending – as well as a Texas state agency, both of which went nowhere.

Hearing about the larger racial disparities in Navy Federal’s mortgage approvals made him think the credit union was “inhibiting veterans and their families from just uplifting themselves,” Otondi said.

CNN’s analysis doesn’t prove that Navy Federal discriminated against any borrowers. But it does show significant disparities in the…