According to the National Association of Realtors’ State of Black Housing in America, mortgage discrimination and appraisal bias are undermining Black homeownership.
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Weakening affordability, inflation, appraisal bias and mortgage discrimination are undermining Black homeownership, according to the National Association of Realtors’ latest State of Black Housing in America report.
According to the NAREB study, the black homeownership rate has declined by 8.6% over the past 20 years, dropping from a high of 50% to 45.7%. As a result, the gap in homeownership rates between black and white Americans reached its highest point since 1970, two years after the Fair Housing Act was passed.
“Black homeownership is hindered by a mortgage financing system that continues to discriminate,” the report says. “Black mortgage applicants are turned down more often than whites. Blacks are more likely than whites to receive higher-priced mortgages, and homes in black neighborhoods have the same value compared to similar homes in white communities. It is unlikely to be evaluated.”
Among the barriers to homeownership for Black people, access to mortgage loans was highlighted as the most difficult issue. NAREB notes that despite strong workforce participation and a narrowing racial wealth gap, Black borrowers still face disproportionate denial rates compared to borrowers of other races. He said there was. In 2023, the rejection rate for black borrowers who applied for conventional loans was 17%, three times the rejection rate for white borrowers (7%). The situation was similar for black borrowers applying for non-traditional loans, with a 17% denial rate. However, the difference in rejection rates was slightly smaller for non-conventional loans, with 9% of white borrowers being rejected.
The top reasons black borrowers were rejected for a mortgage were a high debt-to-income ratio (42%) and poor credit history (17%). The rate of denials due to high debt-to-income ratios decreased because Black borrowers had incomes 120 percent above Area Median Income (AMI). However, this same group was more likely to be rejected for poor credit history than a white group with similar incomes and credit scores.
“Loan origination failure rates, a comprehensive measure of loan application failure, increased for Black applicants in 2023, compared to an overall failure rate of 38 percent for Black applicants. compared to 25 percent for white applicants. Much of this disparity is due to higher rejection rates,” the report says. “Similar to last year, 21 percent of black applications and 17 percent of white applications had their applications withdrawn or their files closed due to incomplete information.”
Black borrowers who qualify for mortgages have more success at nonbank financial institutions than traditional banking institutions. The rejection rate for black borrowers by nonbank lenders is 15%, which is 34% lower than the rejection rate for traditional banks (23%). While very low- to low-income Black borrowers still rely on traditional banking institutions due to Community Reinvestment Act (CRA) regulations, middle- and upper-income Black borrowers may be able to use non-bank financial institutions for their mortgage needs. Highly sexual.
“…The Community Reinvestment Act (CRA) requires banks to meet the credit needs of low-income and underserved communities,” the report says. “Applications to banks, savings institutions, and credit unions from both racial groups were more common among very low-income and very high-income applicants. The preference may be related to banks’ efforts to comply with CRA requirements and improve ratings on loans to low-income areas.
Beyond disproportionate rejection rates, SHIBA said Black homebuyers and home sellers also suffer from appraisal bias.
Low home appraised values in majority-black communities complicate the loan process for black homebuyers, who must make up the difference with down payments and higher interest rates. Meanwhile, Black home sellers lose out on legitimate equity returns, putting their short- and long-term financial plans at risk.
“Neighborhood Level Utilization” [Federal Housing Finance Agency Uniform Appraisal Dataset] A 2022 report from the Brookings Institution shows that appraised transactions in majority-Black neighborhoods are 1.9 times more likely to be appraised at the contract price than similar homes in white neighborhoods. ” says the report. “A longitudinal analysis of UAD aggregate statistics conducted by Junior Howell and Elizabeth Korver Glass found that homes in white neighborhoods were worth twice as much as homes in minority communities (i.e., neighborhoods with no white residents). The study found that the gap in average property valuations based on race has widened over time, with the pace accelerating from 2013 to 2021.
Through partnerships with the Department of Housing and Urban Development (HUD), the National Society of Real Estate Appraisers (NSREA), the Home Preservation Exchange (HPE), and several organizations, NAREB provides information on mortgage and appraisal discrimination and other homeownership issues. He said he is working to remove key barriers. and other regulatory and legislative organizations dedicated to closing the homeownership gap. The group also lobbies for student loan forgiveness, a national homeownership tax credit program, an end to loan-level price adjusters, and programs to increase diversity in the appraisal industry.
“As noted in many previous NAREB reports, the roots of the current housing finance system lie in the establishment of the Federal Housing Administration in 1934,” the report concludes. “Since then, the geographic landscape and demographics of the United States have changed significantly.”
“While the legislators who helped create today’s housing finance system committed highly discriminatory acts that blocked access for black families, their genius work has contributed to the vibrant white middle class that exists today. It created class,” he added. “Those leaders were visionaries, and America needs that kind of visionary leadership today.”
Read the full report below.
Email Marian McPherson
