Black mortgage applicants are denied 84% more often than whites; Arkansas near top of list of deniers

Black mortgage applicants are denied 84% more often than whites; Arkansas near top of list of deniers

BCN Staff – Jan. 13, 2022 — A new Zillow report highlights something that most potential Black homeowners and renters in Arkansas and rest of America already know – that it is increasingly more likely for Black applicants to be denied a mortgages despite dozens of Fortune 500 banks, lenders and financial institutions promising to change that narrative.

In a new report released today (Jan. 13), Zillow’s own analysis of data from the federal Home Mortgage Disclosure Act showing that while overall denial rates have decreased, Black applicants are increasingly more likely than white borrowers to be denied a mortgage.

Under the HMDA, which was originally enacted in 1975, Congress now requires many financial institutions to maintain, report, and publicly disclose loan-level information about mortgages. These data help show whether lenders are serving the housing needs of their communities; they give public officials information that helps them make decisions and policies; and they shed light on lending patterns that could be discriminatory. The public data are modified to protect applicant and borrower privacy.

In late November, the Consumer Financial Protection Bureau (CFPB) issued a Request for Information (RFI) to seek input on rules to better implement the HMDA. The CFPB plans to review recent changes to the rule and evaluate their effectiveness. CFPB said this evaluation will strengthen the federal regulator’s ability to maintain a fair, competitive, and non-discriminatory mortgage market.

At noted, the Black homeownership rate that ticked up before the pandemic has again begun to fall, spurred by a widening mortgage approval gap between Black and white applicants, according to the Seattle-based real estate data analytics firm. The new real estate mortgager’s study now shows that while overall denial rates have decreased, Black applicants are increasingly more likely than white borrowers to be denied a mortgage.

For example, Black applicants are denied a mortgage at a rate 84% higher than that of white applicants — a big jump from 2019, when the disparity sat at 74%. In the U.S., 19.8% of Black applicants are denied a mortgage, the highest among all races, and much higher than the 10.7% of white applicants who are denied.

Not surprisingly, Black applicants across the South have the highest mortgage turndowns with denial rates in Mississippi (31%), Louisiana (26.1%), Arkansas (26%) and South Carolina (25.8%) at the highest level.

“Homeowners have seen a plethora of housing gains during the pandemic, but the growing disparity between Black and white homeownership rates and home values paints the picture of who those winners actually are,” said Zillow economist Nicole Bachaud. “While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines. Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity.”

More than 6% of Black applicants are denied based on credit history, accounting for over one-third (37%) of all Black borrower denials. Limited traditional financial services in Black and other communities of color is a significant factor in credit history. Black communities have a higher number of nontraditional services, such as payday lenders, which contributes to poor credit health.

While the Black homeownership rate has risen from the depths it hit following the Great Recession, it remains far below the peak of 49.7% reached in 2004. Becoming a homeowner is the first step — but hardly the last — in the journey to housing parity. Black-owned home values continue to lag behind those of other races, and are still worth 16.7% less than homes overall. Black-owned home values are appreciating at higher rates than homes overall, but would take over 22 years to catch up, at this year’s forecast rates of growth.

Households of color, as well as renters and lower-income households, were more likely to report encountering housing and economic challenges due to the pandemic. Black households were more likely than white households to report a job or income loss and difficulty keeping up with mortgage or rent payments. This disproportionate impact of the pandemic on Black households has stalled efforts to close gaps in credit access, homeownership, home values and mortgage denial rates, slowing the journey to equity even more.

While there has been progress in increasing Black homeownership since the Great Recession, there are still many challenges on the way to achieving equity. Closing the credit and financial access gap is a good start to get more Black renters on the path to homeownership. The recent adoption of policies by Fannie Mae and Freddie Mac allowing rental payments to count towards credit history is a step in the right direction and a good example of how policies can be used to target these issues. Zillow recently launched a down payment assistance tool on all for-sale listings to help potential buyers see the number of potential down payment assistance programs that may be available to them.

As the new HDMA data is being untangled, the promise of billions of dollars in post-George Floyd corporate commitments to shore-up for decades of discrimination and stolen Black wealth Wall Street financial conglomerates have come up short. In the past two years that have included social unrest concerning jobs and financial opportunity and calls for financial justice nationwide, there is no proof that commitments from Fortune 100 companies such as J.P. Morgan Chase, Microsoft, Bank of America, and mortgage redliner Well Fargos, as well as regional banks and financial institutions such as Truist, Bancorp Souty, U.S. Bank and MasterCard, have trickled down to Black households.

According to a study in May 2021 by Creative Investment Research, American corporations have pledged to spend $50 billion on racial equity since Floyd’s murder. The funds were to be spread between donations to civil rights organizations, targeted investments in communities of color and overhauls of their internal recruiting and training programs. However, only about $250 million has actually been spent or committed to a specific initiative, according to an analysis by the research consulting firm.

Locally, Little Rock and Arkadelphia-based Southern Bancorp Inc. has received huge cash infusion from the U.S. Treasury programs aimed at Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs), as well as millions of dollars in financial commitments from Bank of America, Chase and financial payment firm Square Inc.  a finishes out a strong 2021 for Arkansas largest CDFI.

In June, Silicon Valley-based Square Inc. said it will invest $25 million of its $100 million commitment in CDFIs and minority-owned banks with Southern to increase their capacity to make loans to local small business owners. Square is the owner of CashApp and other digital payment and financial services businesses.

In September, JPMorgan Chase also announced that Southern Bancorp was one of 14 CDFIs to receive a multi-million-dollar equity investment as part of the company’s $100 million commitment to minority-owned and Black-owned banks. Terms of the deal were not disclosed, but the nation’s largest financial conglomerate said the investment with the Arkansas bank was part of its $30 billion racial equity commitment first announced after the George Floyd murder in the summer of 2020.

Southern also received a similar investment Bank of America announced in late 2020, which included a $50 million commitment toward acquiring approximately 4.9% of common equity in 10 CDFIs and minority-owned banks, including Little Rock-based Southern Bancorp. These investments were part of Bank of America’s $1 billion-plus commitment to racial equality and economic opportunity following the George Floyd protests a year ago.

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