Report reveals mortgage denial rate for Black borrowers

Group continues to lag behind despite repeated studies alerting to the problem

Report reveals mortgage denial rate for Black borrowers

Racial barriers to homeownership in the US remain one of the key issues affecting underserved borrowers, according to a new report.

Lending Tree, an online marketplace and financial services provider, has found that on average 18% of Black homebuyers are denied a mortgage — nine percentage points higher than the average denial rate for the overall population.

The report, which analyzed data from the 2020 Home Mortgage Disclosure Act (HMDA), said the share of Black Americans who had their mortgage requests denied was “notably higher” in the nation’s 50 largest metros.

Detroit (in the state of Michigan), Miami and Jacksonville (Florida) were the cities with the highest average denial rates for Black borrowers (25.5%).

This was more than double the average denial rate of 12.5% across San Francisco (California), Seattle (Washington) and Sacramento (California), the cities with the smallest percentage point differences between denial rates for Black borrowers and the overall population.

St. Louis (Missouri), Boston (Massachusetts), and Jacksonville were the cities with the largest percentage point differences, with an average of 13.3 percentage points higher than the denial rate for the overall mortgage borrower population.

In St. Louis, the mortgage denial rate was 20.7% for Black borrowers compared to 7.3% for the rest. By contrast, in San Francisco, it was 11.7% compared to 9.4%, respectively.

Although the report said the exact reasons behind the disparity were “difficult to pin down”, it cited lower incomes generally and less household wealth among Black Americans as contributing factors for the disproportionately high denial rates.

Read more: Black mortgage discrimination – applicants denied at alarming rate

It said: “Because lenders usually look at factors like a person’s income when determining whether to issue a loan, earning less money can make getting approved for a mortgage more difficult.”

However, it also pointed out that “the legacies of historical policies” meant to disenfranchise Black homebuyers, such as illegal ‘redlining’ and offering a borrower worse terms on their loan because of their race, “likely” contributed to the problem.

In response to the findings, Lending Tree advised Black borrowers to shop around for a lender, even if they had previously been denied a mortgage, and to consider different types of loans, such as those backed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), which can be easier to qualify for than other types of mortgages, especially for people with lower incomes.

In addition, it recommended Black borrowers to speak up if they felt they were being discriminated against and even consider filing a complaint with their local housing authority, attorney general’s office or the Department of Housing and Urban Development (HUD).

Separate analysis last year from personal finance company Nerdwallet showed that while homeownership rose to 75% among white Americans in 2020, only 44% of Black Americans owned a home, placing Black Americans at the bottom in homeownership among minority groups, behind Asian Americans (60% homeownership rate) and Hispanic Americans (49%).

This marks a historical regression as industry data shows that the rate of Black homeownership has not only contracted in the last 50 years, but that the gap between White and Black American homeownership is worse than it was before the 1968 Fair Housing Act, which was introduced to create equal housing opportunities for minorities.

Shashank Shekhar, CEO of Arcus Lending, strongly argued for more robust state and federal intervention to address the issue and close the racial wealth gap.

Read more: MBA’s Black homeownership plan falls short, says CEO

In an interview with MPA last year, he said: “That’s what’s going to move the needle if you’re trying to get three million more homeowners into the home or get to 50-60% homeownership. You can’t meet aggressive goals by saying ‘OK, let’s train the lenders or the brokers with better counselling’.” 

For Kael Coleman, CEO and founder of Protecdiv, a reinsurance brokerage firm and a certified Minority Business Enterprise (MBE) indirectly working with underserved communities, the main obstacle to achieving homeownership for low- and middle-income households is related to zoning and the need to open up more farmland for development.

In a recent interview with MPA, he also called on the housing and finance industry to find more creative solutions, such as improving the credit worthiness of lower income borrowers.

Jonathan Reckford, the CEO of non-profit housing organization Habitat for Humanity (HH), also blamed a lack of stock of affordable housing for exacerbating the problem.

According to a recent estimate by Fannie Mae, there is a shortage of about 3.8 million homes in the US.