While the industry continues to make strides to increase equality in homeownership, it is not yet a level playing field for all populations. A new Zillow report finds that Black homeowners face added challenges when it comes to getting approved for a mortgage—getting denied at a rate 80 percent higher than white applicants. The report, which uses data from the Home Mortgage Disclosure Act, also found that the gap is even higher for conventional loans—120 percent over the denial rate for white applicants.
A few of the biggest obstacles for the Black population in relation to real estate are:
– Predatory lending
– Insufficient credit history
– Inability to build wealth through homeownership
In addition, Zillow finds that mortgage denials tend to happen more in ZIP codes with a higher share of Black residents, which indicates redlining is still happening—an illegal, discriminatory practice, as stated in the Fair Housing Act.
These added challenges are preventing Blacks from purchasing a home in their preferred neighborhood and accessing the amenities and services they desire, with a diminished ability to build wealth through homeownership.
According to Zillow’s 2019 Consumer Housing Trends Report, Black homebuyers are 15 percent less likely than white buyers to purchase within their initial desired neighborhood. In addition, nearly one-third of Black buyers who stayed within their original budget ended up purchasing farther from school and work compared to only 13 percent of white buyers.
“At a time when racism is at the front of many Americans’ minds, the disparity in mortgage rate denials is yet another reminder that the housing market—and country—have not done enough to address inequities and heal the scars from an unjust past,” said Zillow Economist Joshua Clark. “The mortgage approval process is rooted in a racially unjust history that persists to make homeownership a far more difficult dream to achieve for many Black Americans. Owning a home is a major way to generate, keep and pass down wealth, and unequal access to mortgages only serves to further entrench inequality.”
How can the industry remove these racial inequalities? According Zillow, the first step is reforming credit scoring systems, allowing rent payments to be positively reflected in credit scores. In addition, Zillow recommends expanding funding for HUD’s fair housing education and enforcement efforts.
For more information, please visit www.zillow.com.
How do lenders know the ethnicity of potential borrowers when applications can easily be done online?