A new analysis of US mortgage applications claims African Americans are twice as likely to be denied a mortgage as white applicants.
The study, carried out by real estate blog Clever Real Estate, also found that the disparity between white and black mortgage approval rates is most pronounced in the South.
In Montana, Idaho, Hawaii and Vermont more blacks get approved than whites, while New York has a nine percent disaparity skewed towards white mortgage approval.
Congress enacted The Home Mortgage Disclosure Act (HMDA) in 1975 to combat credit shortages in urban neighborhoods throughout the United States. The government believed that financial institutions contributed to the decline in cities across the Rust Belt, from Detroit to St. Louis, due to discriminatory lending practices.
The Federal Financial Institution’s Examination Council (FFIEC) collects and discloses data about applicant and borrower characteristics to help identify possible discriminatory lending patterns and enforce anti-discrimination statutes.
Its primary purpose is to provide data — it’s up to a discerning public to scrutinize the data and determine whether discriminatory malfeasance has occurred.
After an initial scan of the database, Clever Real Etsate said saw a disturbing trend: 26 percent of African-American applicants were denied mortgages compared to 10 percent of white-American applicants.
After collecting and analyzing over 1.7 million applicants from 2016, two things became clear:
Even when controlling for income, African Americans are twice as likely to be denied a mortgage than white applicants
The applicant data points are limiting, and HMDA’s data set is missing important variables like why applicants were denied
The analysis found that racial disparity is least in the West, but the difference between approval rates is still statistically significant, indicating racial discrimination in the mortgage industry is a nationwide issue
Mortgage applicants are overwhelmingly white: Of Clever’s 1.7 million applicants sampled, 1,482,248 mortgage applicants were white, compared to 80,442 African Americans, 93,762 Asian Americans, 29,293 American Indians, and 15,645 Native Hawaiian or Pacific Islanders
The Home Mortgage Disclosure Act (HMDA) grew out of public concern over credit shortages in urban neighborhoods, but the data is sparse: 52 percent of black applicants had no reason listed for their mortgage being denied.
African-American and Hispanic home buyers are respectively 105 and 78 percent more likely to use high-cost mortgages for home purchases, putting them at greater risk of foreclosure
The states where black applicants are least likely to get approved include Kansas, South Carolina, Mississippi, Louisiana, Arkansas, Delaware, and Alabama. In states like South Carolina, 49 percent of black applicants were denied applications compared to eight percent of white applicants, not controlling for income.
A separate survey by Reveal and The Center for Investigative Reporting didn’t find clear evidence of discrimination in the New York tri-state area.
“That doesn’t mean it doesn’t exist, but it didn’t show up through our statistical tests,” said the survey creators. “For Asian, Latino, black and Native American applicants, there were enough applications, but other statistical factors made it difficult to draw a conclusion.”