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Largest US Credit Union Scrutinized Over Significant Gaps Between Approval Rates for White and Black Borrowers

Navy Federal approved a higher percentage of applications from white borrowers earning less than $62,000 annually than Black borrowers earning $140,000 or more.



By Stacy M. Brown
Navy Federal Credit Union, the largest credit union in the United States, is under fire for exhibiting the most substantial racial disparities in mortgage approval rates among major lenders. The disparities, reaching new heights in 2022, underscored a pronounced contrast in approval rates for white and Black borrowers.

Recent Consumer Financial Protection Bureau data indicated that Navy Federal approved over 75% of white applicants for new conventional home purchase mortgages in 2022. In stark contrast, the approval rate for Black borrowers applying for the same type of loan was less than 50%. The nearly 29-percentage-point gap in approval rates at Navy Federal stands out as the widest among the top 50 lenders originating the most mortgage loans last year.

Even when considering similar incomes and debt-to-income ratios, the racial disparity persisted. Navy Federal approved a higher percentage of applications from white borrowers earning less than $62,000 annually than Black borrowers earning $140,000 or more.

A detailed statistical analysis conducted by CNN revealed that Black applicants to Navy Federal were more than twice as likely to be denied compared to white applicants, even when multiple variables, including income, debt-to-income ratio, property value, downpayment percentage, and neighborhood characteristics, were identical.

Navy Federal, initially founded in 1933 to serve Navy employees and now open to all armed forces members, Department of Defense personnel, veterans, and their relatives, boasts about 13 million members and holds over $165 billion in assets. Last year, the credit union rejected approximately 3,700 Black applicants for home purchase mortgages, potentially impeding their path to homeownership, notably as interest rates spiked.

Bill Pearson, a spokesperson for Navy Federal, 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 stated. However, experts in mortgage lending and advocates for fair housing express concerns about the institution’s practices, emphasizing that the racial gaps in approval rates raise questions about Navy Federal’s commitment to fairness.

The widening gap in homeownership rates between white and Black Americans, exemplified by Navy Federal’s 2022 approval rates of 77.1% for White applicants, 55.8% for Latino applicants, and 48.5% for Black applicants, mirrors a broader national issue. In comparison, other major lenders like Wells Fargo, US Bank, and Bank of America exhibit smaller racial approval rate gaps.

CNN reported that advocates have urged lenders to improve automated underwriting systems to reduce racial disparities in decision-making. Some experts pointed out that Navy Federal’s unique member base may have different financial characteristics than large banks, potentially influencing the observed racial differences.

While federal regulators review banks’ lending under the Community Reinvestment Act, the network reported that credit unions like Navy Federal are not subject to the same scrutiny. Calls for legal revisions to ensure credit unions adhere to similar rules as banks have continued.

Sara Pratt, a lawyer at Relman Colfax, noted that racial disparities in mortgage lending may also be linked to loan officers assisting white borrowers more than Black ones. Despite having no evidence of such practices at Navy Federal, Pratt emphasized that the approval rate gaps demand explanations from the lender.

Federal law stipulates that lenders can be in violation of fair lending rules without intentional racism, as a “disparate impact” on minorities can lead to discrimination claims. This is not the first time Navy Federal has faced scrutiny over racial disparities, as a previous analysis in 2019 indicated significant gaps. This trend appears to have only intensified since then.


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