Opportunities for tax breaks, wealth accumulation and equity building are among the reasons why homeownership is part of the American dream. But according to new data, securing a mortgage to purchase or refinance a home can be a devastating detour on the road to that dream for people of color—despite decades old legal protections against redlining and other forms of discrimination in real estate.
Lending Tree, the Charlotte-based online lending marketplace, evaluated publicly available mortgage data from 2021 and 2022 and found that in the country’s 50 largest metropolitan areas, on average, over 14 percent of Black homeowners were denied a mortgage, compared to a 9 percent denial rate for the rest of the population.
Black buyers looking to purchase a home in Miami, Detroit or New Orleans don’t have the odds on their side. The average denial rate for Black borrowers in these areas is over 20 percent – more than double the average across Salt Lake City, Kansas City, and Minneapolis, where the denial rate is lowest.
The data help paint a difficult picture for Black Americans in the real estate market. Mortgage rates are at their highest level in three decades, and home values have swelled due to a historic dearth of available listings—a combination that serves to lock our many buyers who struggle to afford the payments on houses the might have afforded just a few years ago.
And although those rising home values generally benefit those who already own their homes in the form of increased equity, there’s evidence that Black homeowners don’t benefit from the boon either, because appraisers routinely devalue homes in majority Black neighborhoods or those that show evidence of having Black owners.
Lenders have increasingly been called out for redlining, the illegal practice of designating areas (usually on the basis of race) in which they don’t want to provide loans. Bank of America and City National Bank are among the financial institutions that have come under fire for discriminatory lending practices that exclude Black and Brown borrowers.
The data Lending Tree examined was available under the Home Mortgage Disclosure Act, under which the federal government tracks metadata about the characteristics of borrowers. The company’s methodology included dividing the number of denied mortgage applications by the total number of applications, including those accepted, denied and withdrawn. Pre-approval requests were not included in the study.
What Can You Do?
Although it may be tougher for Black and Brown borrowers to qualify for a mortgage, it’s not impossible. A little time and whole lot of patience can help make your American dream a reality.
You Better Shop Around - A “no” from one bank doesn’t have to derail your dreams of homeownership altogether. Shopping around for a mortgage can get you that “yes” and help you find the lowest rate possible.
Don’t Be Afraid to Speak Up - The Fair Housing Act makes it illegal to discriminate against a potential borrower based on race. So if you think you have a case, take it to your local housing authority or attorney general’s office or the Department of Housing and Urban Development to file a complaint.