Mortgage discrimination and appraisal bias are eroding Black homeownership gains, according to the National Association of Real Estate Brokers’ State of Housing in Black America.
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Weakening affordability, inflation, appraisal bias and mortgage discrimination are eroding Black homeownership gains, according to the National Association of Real Estate Brokers’ latest State of Housing in Black America report.
NAREB’s research revealed the Black homeownership rate has declined 8.6 percent over the past two decades, falling from a high of 50 percent to 45.7 percent. As a result, the homeownership rate gap between Black and white Americans has reached its highest point since 1970, two years after the Fair Housing Act was signed into law.
“Black homeownership is hampered by a mortgage finance system that continues to discriminate,” the report read. “Black mortgage applicants are turned down more often than Whites; Blacks are more likely to receive high-cost home loans than their White counterparts, and houses in Black neighborhoods are less likely to be appraised at the same values compared to similar homes in white communities.”
Of the barriers to Black homeownership, mortgage access was highlighted as the most challenging issue. Despite strong workforce participation and a narrowing racial wealth gap, NAREB said Black borrowers still face disproportionate denial rates compared to borrowers of other races. In 2023, Black borrowers applying for conventional loans had a denial rate of 17 percent, triple the denial rate for white borrowers (7 percent). The landscape was the same for Black borrowers applying for non-conventional loans, who also had a denial rate of 17 percent. However, the denial rate gap was slightly smaller for non-conventional loans, with 9 percent of white borrowers being declined.
The biggest reasons for mortgage denials among Black borrowers were a high debt-to-income ratio (42 percent) and bad credit history (17 percent). The percentage of denials due to a high debt-to-income ratio decreased as Black borrowers surpassed earnings 120 percent above their area median income (AMI). However, this same group was likelier to face denials due to bad credit history than their white counterparts with similar incomes and creditworthiness.
“Loan origination failure rates, a comprehensive indicator of unsuccessful loan application outcomes, increased for Black applicants in 2023. Black applicants faced a 38 percent overall failure rate, compared to 25 percent for White applicants, with most of this discrepancy stemming from higher denial rates,” the report read. “Similar to the previous year, withdrawn applications and closed files due to incomplete information accounted for 21 percent of Black applications and 17 percent of White applications.”
Black borrowers who successfully qualify for a mortgage, are finding more success with nonbank lenders than traditional banking institutions. The denial rate for Black borrowers with nonbank lenders is 15 percent — 34 percent lower than the denial rate at traditional banks (23 percent). Mid-to-high-income Black borrowers are mostly likely to utilize nonbank lenders for their mortgage needs, as very-low to low-income Black borrowers still lean on traditional banking institutions due to Community Reinvestment Act (CRA) regulations.
“… the Community Reinvestment Act (CRA) mandates banks to meet the credit needs of lower-income and underserved communities,” the report read. “Applications to banks, savings institutions, and credit unions from both racial groups were more common among the very low-income and very high-income bracket applicants. The preference for banks among the lowest-income applicants might be tied to banks’ efforts to comply with CRA requirements and improve their ratings for lending in low-income areas.”
Beyond disproportionate denial rates, SHIBA said Black homebuyers and homesellers also suffer from appraisal bias.
Low-ball valuations of homes in predominantly Black communities complicate the loan process for Black homebuyers, who will need to compensate for the discrepancy with a higher down payment or higher interest rate. Meanwhile, Black homesellers end up losing out on their rightful equity gains — placing their short and long-term financial plans at risk.
“Using neighborhood-level [Federal Housing Finance Agency Uniform Appraisal Dataset] data, a 2022 report by the Brookings Institution showed that appraisal transactions in majority-Black neighborhoods are 1.9 times more likely to be appraised under the contract price than similar homes in White neighborhoods,” the report read. “A longitudinal analysis of UAD aggregate statistics performed by Junia Howell and Elizabeth Korver-Glass found that homes in White neighborhoods are valued twice as much as those in minority communities (i.e., neighborhoods with no White residents). The study found that the average appraised property value gap based on race has widened over time, and the pace has accelerated from 2013 to 2021.”
NAREB said it’s working to eliminate mortgage and appraisal discrimination and other key homeownership barriers through partnerships with the Department of Housing and Urban Development (HUD), the National Society of Real Estate Appraisers (NSREA), the Housing Preservation Exchange (HPE), and several other regulatory and legislative organizations dedicated to closing the homeownership gap. The group is also lobbying for student loan forgiveness, a national homeownership tax credit program, the elimination of loan-level price adjusters, and programs to increase diversity in the appraisal industry.
“As pointed out in numerous previous NAREB reports, the current housing finance system has its roots in the 1934 establishment of the Federal Housing Administration,” the report concluded. “Since that time, the geographic landscape and demographic composition of the U.S. population has altered greatly.”
“Although the legislators who worked to enact the housing finance system we have today were extremely discriminatory in precluding access for Black households, the genius of their work created the vibrant White middle class that exists today,” it added. “Those leaders were visionaries; America needs that type of visionary leadership today.”
Read the full report below:
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