"Getting denied a loan serves a huge blow to a person's self esteem—especially for people of color, who often feel like the world is already falling on them," said
Overall, Americans today are half as likely to be denied a mortgage loan as they were in the wake of the 2008 financial crisis. The share of total applicants who faced rejection dropped to 8.9% in 2019 from 18% in 2008, according to the latest annual figures just released by the
While the racial mortgage gap has been narrowing over the years, Black Americans are still denied home loans at a higher rate than white Americans in every one of the 50 most populous
Metros with the Largest and Smallest Gaps Between Black and White Denial Rates
"The residue of redlining is still very tangible in
Meanwhile, the metro with the smallest gap is
Reasons for Denial
While debt is the number-one explanation lenders provide when denying applicants across races, Black homebuyers are more frequently turned down for this reason, according to the
In a Redfin survey from
The discrepancy is even more stark when it comes to credit, with a quarter of Black applicants being shown the door due to their credit histories, versus just 18.5% of white applicants. Research has shown that the algorithms many lenders now use in credit scoring, which are meant to be unbiased, may actually systematically deny credit access to specific groups.
While banks often cite debt or a low credit score as the reason for denying mortgages to Black Americans, biases held by lenders also play a part.
"Banks still have a lot of power when it comes to determining who gets a loan," Brady said. "Black applicants are more likely to be asked to provide additional documents despite very clear guidelines from federal agencies on what's required. I'm a mortgage adviser who knows the rules backward and forward, and I've encountered this as a loan-applicant myself. Why are you asking me for two years of tax returns when the requirement is one?"
One way to curtail this discrimination would be to hide applicant names and races/ethnicities from underwriters when they are determining risk, according to
Another problem is the lack of incentive to help clients with low credit scores, Brady added. Loan officers in the industry are more likely to offer advice to a borrower who already has a high FICO score and just wants to secure a better interest rate than to help someone who needs to increase their score to the 620 minimum just so they qualify for a loan, he said.
Opportunities for Change
Beyond providing bias training and incentivizing mortgage brokers to lend money to people of color and low-income Americans, there are countless ways to even the playing field. For example, offering more homebuyer classes and financial education in minority communities could help more people of color realize homeownership is within their means.
"Many people aren't aware that you don't need a 20% down payment or a 750 credit score to buy a house," Walker said. "There are down payment assistance programs that buyers can take advantage of, but they have higher interest rates. Luckily, you can refinance out of those higher rates, but in order to do that, you need to understand refinancing."
Diversifying hiring within the mortgage and real estate industries is another way to help ensure that underserved communities have advocates to educate and guide them through the loan application and homebuying processes. Just 26.4% of workers in the housing industry identify as a racial or ethnic minority, according to Fannie Mae.
Alternative credit-scoring models could also help combat the racial mortgage gap. For instance, credit agencies could value on-time rent payments the same way they value on-time mortgage payments, helping more renters prove their creditworthiness. They could also place more emphasis on job stability, said
"If you've worked for the post office for 20 years, that should be scored higher than working for a startup out of someone's garage for two months," he said. "The post office is going to be here 10 years from now, but the startup in the garage might not be."
To read the full report, including methodology and a full metro-level breakout of mortgage denial rates and reasons for denial, please visit: https://www.redfin.com/blog/mortgage-denials-by-race-united-states.
Redfin (www.redfin.com) is a technology-powered residential real estate company, including brokerage, iBuying, mortgage, and title services. Founded by software engineers, we run the country's #1 most-visited brokerage website and offer a host of online tools to consumers, including the Redfin Estimate. We represent people buying and selling homes in over 90 markets in
For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the
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