National research shows widespread discrimination against minority mortgage applicants

By: Mia Watson

A new report from the Center for Investigative Reporting reveals that lenders across the United States are denying conventional mortgage loan applications for African American and Latino applicants at higher rates than comparable White applicants.

Minority groups in the United States have historically struggled to access homeownership, in large part due to racially biased lending practices. In response, the federal Fair Housing Act of 1968 was passed in order to help protect individuals from discriminatory practices by landlords and financial institutions. The Community Reinvestment Act was later passed in 1977 to provide incentives for financial institutions to help meet the credit needs of their local communities. Despite these positive efforts, racially biased lending – also known as red-lining – continues.

According to Pew Research Center, data collected under the Home Mortgage Disclosure Act shows that overall in 2015, 27% of African American applicants and 19% of Latino applicants were denied mortgages, compared with about 11% of White and Asian applicants. The Center for Investigative Reporting report finds that in many markets, inequality persisted even after controlling for applicant income, loan amount, and the neighborhood.

The racial divide in mortgage lending and homeownership was widened by the housing crisis beginning in 2007. The Urban Institute describes how African American households in particular were disproportionately targeted with predatory lending practices before the crisis, lost a greater proportion of household wealth during the recession, and have recovered more slowly than other groups. Only 20% of African Americans aged 30 to 34 owned homes in 2016, compared with 34% back in 2000.

In the wake of the crisis, tight credit market conditions have made it difficult for all households with lower credit scores and modest savings to obtain a home loan. It can be difficult to separate the effects of the well-documented history of racially biased lending with a housing market that has significant barriers of entry for many homebuyers. Housing experts consulted by the Urban Institute argue that the problem must be tackled on both ends – including increasing transparency and accountability in the lending process to ensure fairness, strengthening enforcement of federal housing laws, and by reevaluating the loan approval process to consider a broader range of creditworthiness factors.

State housing finance agencies like VHFA can also play an important role in dismantling barriers to homeownership for low- and moderate-income households by offering mortgages with low interest rates and low down payment options as well as down payment and closing cost assistance.