Mortgage

Black Mortgage Applicants Denied 84% More Often than White Borrowers

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  • Black applicants are being denied mortgage at an 84% higher rate than white applicants, an increase of 10 percentage points since 2019.

  • Credit history is the most common reason that black applicants are denied a mortgage.

  • Black home ownership is 44%, well below the peak of 49.7% set in 2004.

The black home ownership rate has rebounded modestly from recent lows, but is still below its peak in the early 2000s as racial disparities in mortgage and housing markets widened during the early part of the pandemic, according to Zillow’s analysis of data from the Disclosure Act Mortgage (HMDA).

The mortgage refusal rate was 84% ​​higher for black applicants than for white applicants in 2020 (the latest year for which data is available), according to HMDA, up from 74% in 2019. 2020, the highest among the races and well above 10.7% of applicants eggs that were rejected. Black applicants had the highest denial rates in Mississippi (31%), Louisiana (26.1%), Arkansas (26%), and South Carolina (25.8%).

And while the proportion of black homeownership has risen to 44% currently from a recent low of 40.6% in the second quarter of 2019, it is still well below the peak of 49.7% set in 2004. Meanwhile, it continues The access gap between white and black mortgage applicants is growing, black homeowners are turning away from the well-established benefits of wealth and community building to home ownership compared to their white peers. This is partly due to the long-standing disparities in income and credit that have been exacerbated during the pandemic.

high barriers

Households of color, as well as renters and low-income families, were more likely to report coincidence Housing and Economic Challenges due to the epidemic. Black households were more likely than white households to report a job or loss of income and difficulty keeping up with mortgage or rent payments. This disproportionate impact of the pandemic on black families has stalled efforts to close gaps in credit access, home ownership, home values, and mortgage rejection rates, making the journey to justice slower than it already was.

Before Search Zillow It shows that black renters face a greater obstacle to jumping in when saving for down payment, which often stems from income inequality. The median income for black home-purchasing applicants in 2020 was $67,000, compared to an aggregate median of $83,000 for all applicants. This may help explain why black mortgage applicants get lower down payments in 2020 than other race applicants. Black applicants place an average of 3.5% on home purchase applications, which is barely above the absolute minimum of 3% required for most conventional loans, and less than half the average down payment of 8.9% of all applicants.

Black applicants also applied to purchase lower-cost homes in 2020 than applicants of other races – median property value of $225,000 for black applicants, and $275,000 for all applicants. The typical down payment from a black applicant was $16,600 less than the average total down payment in 2020. Given typical blacks income and savings rates, our research shows that it can take an additional decade for black applicants to provide the same amount of down payment as all Applicants – highlight the amount of the remaining impediment from the advance payments to achieve full housing equality.

Credits and discounts

Access to traditional financial services is another source of large variation in down payments and access to mortgages. As in previous years, insufficient credit remained the most common reason for black mortgage rejections in 2020 – More than 6% of black applicants were rejected based on credit history, which is the reason for more than a third (37%) of all black mortgage rejections. relative deficiency traditional financial services In primarily black communities (along with primarily Hispanic communities) is an important driver of the large gap in the credit history of black applicants. The high prevalence of non-traditional services (payday lenders, etc.) and the lack of traditional services (eg banks) contribute to Poor credit health For entire communities, particularly communities of color.

This shortage of credit leads to higher mortgage rejections for credit related reasons,[1] But even those with decent credit are affected by the uneven financial landscape in the United States. Nearly one in seven black families were He had no bank accounts in 2019, and more than Half You don’t have any savings for retirement. The fact that there are very limited (or sometimes no) traditional deposit institutions in predominantly black communities is one reason for this. Not being able to access bank accounts makes it difficult to save money for large sums like a down payment, regardless of income.

But better credit and higher savings rates alone are not a panacea that should be expected to balance the market in favor of black mortgage applicants, even those who have successfully achieved home ownership. Overcoming the huge barriers to home ownership is the first, but not the last, step in the journey to achieving housing equity. The value of black-owned homes themselves has long lags behind those of other races—in October 2021, black-owned homes were worth 16.7% less than the typical American home, leaving less ownership for black homeowners to profit, all else equal.

Silver Linings & First Steps

The silver lining is that black-owned homes are growing faster in value than those of any other race — 1.5 percentage points ahead of all home values ​​in October (and projected to grow 0.8 percentage points ahead of all home values ​​by September 2022). However, with the large difference in levels, it will take more than 22 years for black-owned home values ​​to reach average – assuming current trends hold.[2]

Part of this problem revolves around disparities in home valuation, including valuations and property tax rates, which are often unfavorable for homeowners of color and/or largely non-white neighborhoods. Black houses and houses are often in black neighborhoods Rated lower, But Higher tax assessments than they should be. This results in black homeowners getting too little on sales and paying too much in taxes — further deepening the wealth gap.

While there has been progress in home ownership for blacks in the past few years, there are still many challenges in the path to housing equity. Homeowners have seen a large number of housing gains during the pandemic, but the growing disparity between black and white home ownership rates and home values ​​actually paints a picture of these winners. While credit borrowers in general are stronger now than ever, the gap in access to credit is growing along ethnic lines. Policies and interventions that target barriers to home ownership by black Americans are keys to achieving housing equity. Closing the credit and financial access gap is a good way to get more black renters on the path to home ownership. The last adoption of Fannie Mae And Freddy Mac Allowing rental payments to be credited to the credit history is a great example of how policies can be used to intentionally target these issues.

[1] HMDA documents for rejection reasons cite several reasons for rejection on the basis of credit, not just a lack of credit history and poor credit scores. The full list of reasons for this refusal is: an insufficient number of credit references provided; Unacceptable type of credit reference provided; No credit profile Limited credit experience; poor credit performance with us; overdue or overdue credit obligations with others; The number of recent inquiries about the credit bureau report; attachment, seizure, lien, redemption, collection or judgment; and bankruptcy.

[2] Assuming that the difference in black and all home value growth rates remain at projected levels in September 2022 (a difference of 0.8 percentage points), it will take until 2044 for black home values ​​to exceed all home values. If the rating of the black house slows down compared to all the houses, it will take longer.

Black mortgage applicants were rejected 84% more often than white borrowers first appeared in Zillow Research.

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