‘How Can We Catch Up?’ Mortgage Denials Stack the Deck Against Black and Hispanic Buyers

The American dream of homeownership is not an equal opportunity ambition.

Black and Hispanic home buyers are more frequently denied mortgages than white buyers—even when their financial pictures are similar, according to a realtor.com® analysis of 2019 mortgage data. When they are able to secure mortgages, Black and Hispanic borrowers are more likely to pay higher fees and interest rates on their loans than white and Asian borrowers.

“What we call it in my community is the ‘Black tax,'” says Donnell Williams. He is president of the National Association of Real Estate Brokers, an organization for Black real estate professionals, and a broker with Destiny Realty in Morristown, NJ.

“Even if we have a college degree, we’re still getting the same treatment as a white high-school dropout,” he says.

Black buyers were twice as likely to be refused mortgages than whites, according to the realtor.com analysis of 7.2 million loan applications in 2019. Only about 5.5% of whites had their loan applications rejected, compared with 6.8% of Asians, 9.3% of Hispanics, 11.7% of Blacks, and 10.8% of multi-minority race individuals hoping to be approved. These denials were only for applicants where all the data was available for fully completed applications that weren’t withdrawn.

Decades of discrimination against people of color have resulted in lower homeownership rates among minorities than among whites in America. And that has a deep, long-term impact on wide swaths of America, since homeownership is traditionally how generations have catapulted themselves into the middle class, as their properties appreciate in value over time.

Nearly three-quarters of whites, 74.5%, owned their homes in the last quarter of 2020, according to a quarterly report from the U.S. Census Bureau. However, just 44.1% of Blacks, 49.1% of Hispanics, and 59.5% of Asians were homeowners in the last three months of the year.

“There are a lot of obstacles that are working against buyers of color,” says Brett Theodos, a senior fellow at Urban Institute, a nonpartisan research group based in Washington, DC.

On top of racial discrimination, “they’re less likely to get help with the down payment from the bank of Mom and Dad,” says Theodos. “They’ve also [often] entered adulthood with higher student loan debt, less inheritance, and are on average in professions that earn lower wages.”

Many of these problems took root generations ago. Whites who served in World War II were offered low-cost mortgages for single-family homes in newly built suburbs when they returned. Blacks and other minorities were often denied access to these loans. In many cases, Blacks, in particular, were explicitly barred from living in white communities through a toxic combination of racial covenants written in deeds and government-supported redlining.

Black Americans, like these Tuskegee Airmen, served their country in World War II but returned home to face discrimination.
Black Americans, like these Tuskegee Airmen, served their country in World War II but returned home to face discrimination.

Bettmann/Getty Images

So Blacks who wanted to become homeowners often had to buy homes at inflated prices in less desirable areas. If they were able to get mortgages at all, they typically paid more for them. And homes in these areas haven’t appreciated nearly as much as homes in white areas, except in the places that have seen significant gentrification. As homeownership is used to catapult folks into the middle class and build wealth, that’s left many minorities with less money to pass down to future generations in the form of college tuition assistance or a down payment.

“How can we catch up? How can we be on par? We didn’t have that head start of generational wealth,” laments the National Association of Real Estate Brokers’ Williams. “You want a piece of the American dream, and it’s hard. You feel like your efforts are in vain.”

Realtor.com took a hard look at which races are most likely to be denied mortgages and the reasons provided for those rejections as well as who is paying the most for those loans. To do so, we analyzed 2019 mortgage application data available through the Home Mortgage Disclosure Act. The act, passed in 1975, requires most larger lenders to collect mortgage data and make it public. We looked at only first-lien mortgages on purchases of one- to four-family homes built on site, so manufactured homes wouldn’t be included.

When possible, we compared borrowers with similar financial profiles to see who was getting loans—and who wasn’t. However, our analysis doesn’t take into account certain discrepancies like credit scores.

Blacks most likely to be denied mortgages—even with good-sized down payments

According to our analysis, even aspiring home buyers of color with sizable down payments are more likely to be denied mortgages.

Black borrowers with 10% to 20% to put down were more than twice as likely to be denied than whites offering the same down payments. Lenders rejected 6% of whites and 9% of Asians—compared with 11% of Hispanics and multi-minority race borrowers and 13% of Blacks.

These higher denial rates may be due to minority borrowers having lower credit scores, more debt, or some other financial black mark. But lending experts believe that racial discrimination also plays a part.

For example, a loan officer might tell white borrowers to improve their credit before submitting an application, be more understanding of alternative forms of income, such as a family member contributing or a side gig, or wait until mortgage rates fall a little so their monthly payment is lower. The latter would increase such borrowers’ shot at getting a loan. But a loan officer may not do the same for customers of color.

“Some of it is decisions being made by the lending officers,” says sociology professor Lincoln Quillian of Northwestern University in Evanston, IL. “They have powerful stereotypes of who is likely to repay loans.”

Black and Hispanic borrowers often pay more for their mortgages

Black and Hispanic borrowers were more likely to receive higher mortgage interest rates on their loans—which can add up to big money over time.

About 59% of white borrowers and 52% of Asian borrowers received rates within 1 percentage point of the best (i.e., lowest) possible rate. However, only 51% of multi-minority race borrowers, 47% of Hispanics, and 44% of Blacks fared as well. (It’s unknown whether some of these borrowers pre-paid or bought down their interest rates during the closing process.)

Even the smallest differences in rates can really add up. A single percentage point difference can lead to a larger monthly mortgage payment and tens of thousands of dollars more paid out over the life of a 30-year fixed-rate loan. (The exact difference depends on the purchase price of the home, the exact mortgage rates, and the size of the down payment.)

A recent study found that wealthier Blacks were given higher mortgage rates than low-income whites.

Black households making between $75,000 and $100,000 a year were saddled with a median 4.215% mortgage interest rate in 2019, according to a report from the Joint Center for Housing Studies at Harvard University. However white households earning $30,000 or less had a lower median mortgage rate of 4.16%. The study looked at 2019 U.S. Census Bureau data.

Even Black households raking in $100,000 a year or more paid slightly higher interest rates, 4.169%, than low-income whites. Whites with six-figure incomes had median 3.946% rates—about 22 basis points less than Blacks who were also earning $100,000 or more.

“We have some deep problems in the mortgage market,” Raheem Hanifa, a research analyst at the center who wrote the study.

“Some of the differences in mortgage [costs] is due to differences in who the lenders are. There’s evidence that Black and Hispanic buyers are more likely to be marketed to by lenders who are higher-cost,” says sociology professor Quillian. “White and Asian borrowers are more likely to go to traditional banks.”

Predatory lending and the proliferation of subprime mortgages doled out to communities of color led to the last housing crash, and plunged the world into a financial crisis more than a decade ago. But at least some of today’s pricier lenders may simply be smaller operations that need to charge more since they’re not dealing with the economies of scale of the bigger banks.

People of color more likely to be denied loans due to debt

Minorities are more likely to be denied mortgages due to their debt. Before deciding whether to grant loans, lenders look closely at potential borrowers’ debt loads. Their goal is to make sure borrowers can afford to pay back their credit card, student loan, car, and other payments—on top of a mortgage.

Only 1.6% of potential whites borrowers had their applications rejected because of their debt loads—compared with 2.5% of Asians, 3.1% of Hispanics, and 3.8% of Blacks. About 3.7% of multi-minority race applicants were also rejected.

While that does not sound like that much of a difference, it means that 1 in 64 white applicants is denied versus 1 in 26 Blacks.

Some minority borrowers may simply carry more debt than white borrowers. Many face discrimination in the workplace that can manifest in lower salaries and fewer promotions. Also, they may not receive the same level of financial help from their families when they get into a tough financial spot.

Black households were more than twice as likely to have student loan debt than white households, according to a recent report from the National Association of Realtors®. About 43% of Black households had student debt, at a median $40,000, compared with 21% of whites, at a median $30,000 in student debt. (The report was based on a survey of more than 8,200 home buyers who purchased a primary home from July 2019 to June 2020.)

Employment and credit histories also led to higher mortgage denial rates for minorities

Blacks and Hispanics were also more likely to be denied a loan due to their employment history. One in 568 white applicants was rejected due to their work history, compared with 1 in 282 Blacks.

“People of color, notably Native Americans, Blacks, and Hispanics, face higher rates of discrimination in hiring,” says the Urban Institute’s Theodos. “It can be more difficult to be promoted or advanced.”

That plays a big part in how much they’re earning. In 2019, Asian households had the highest median incomes of $98,174, followed by non-Hispanic white households at $76,057, according to U.S. Census Bureau data. Hispanic households had a median income of $56,113, while Black households brought in the least, at $45,438.

Blacks and Hispanics are also more likely to lose out on a loan due to their credit scores. About 0.6% of Asians and 1% of whites were denied due to their credit histories compared with 1.6% of Hispanics, 2.9% of Blacks, and 2.4% of multi-minority races.

Typically, people build good credit by paying off their student loans, car loans, and credit card bills on time each month. However, many lower-income Americans are less likely to have graduated from college or have credit cards. And what folks do pay every month—their rent, utility, and cellphone payments—often aren’t counted toward credit profiles.

“It’s not just discrimination today that is why we see denials at higher rates for Blacks and Hispanics. It’s the byproduct of generations of systemic racism,” says Theodos. “We have a long way to go in overcoming the deep, historical divide of opportunity for people of color in this country.”

Source: realtor.com

The 10 Best Cities for Diversity in STEM Jobs

Black female scientist
metamorworks / Shutterstock.com

This story originally appeared on SmartAsset.com.

Over the past 30 years, employment in science, technology, engineering, and math (STEM) jobs has grown by almost 80%, according to a recent figure from Pew Research Center. However, there is still significant disparity in representation across gender lines and particularly racial ones: Though Blacks and Hispanics combined accounted for more than a quarter (27%) of the 2016 U.S. workforce, Pew reports they totaled only 16% of the STEM workforce.

Where people live, though, can be a factor in their access to companies that value a more heterogeneous group of employees. That’s why SmartAsset decided to find which cities are doing better than others when it comes to diversifying STEM workforces. This is SmartAsset’s fifth study on the best cities for diversity in STEM. Read the 2019 version here.

To find the best cities for diversity in STEM, SmartAsset analyzed data for the 35 cities in the country with the largest STEM workforces. Specifically, we measured across the following metrics:

  • Racial diversity index. We calculated this based on the racial diversity of a city among the main U.S. Census Bureau groups using the Shannon index. Cities with a more equally distributed workforce across the racial groups received a better score.
  • Gender diversity index. This measures the number of women in the workforce compared with men. The city with the highest percentage of women in STEM jobs received a score of 100, and the city with the lowest percentage received a zero.

We averaged these two indexes to create our final score, which we used to rank the cities.

Data for both metrics comes from the Census Bureau’s 2019 1-year American Community Survey.

Following are the best cities for diversity in STEM jobs.

1. Oakland, CA

Oakland, California
EddieHernandezPhotography / Shutterstock.com

Oakland, California, takes the No. 1 spot in our study. Even though the STEM workforce is almost 63% male, the city ranks second-best on our gender diversity index for STEM workers, just after Washington, D.C.

In terms of racial makeup, Oakland’s race/ethnicity index is the seventh-highest in the study. Black workers make up a little more than 8% of the STEM workforce, Asian workers make up about 22%, and Hispanic or Latino workers make up more than 10%. White workers make up more than 52% of STEM workers.

2. Boston, MA

Boston, Massachusetts
ESB Professional / Shutterstock.com

Boston, Massachusetts, has the third-best gender diversity index across all 35 cities: Almost 64% of STEM workers are men, and a little more than 36% are women.

In terms of race/ethnicity, white workers make up about 59% of all STEM workers, Black workers make up close to 7%, Asian workers close to 18%, and Hispanic workers about 13%.

3. Philadelphia, PA

Philadelphia, downtown evening rush hour.
Sean Pavone / Shutterstock.com

In Philadelphia, Pennsylvania, STEM workers total 38,000, two-thirds of whom are male and one-third of whom are female.

White workers make up about 57% (about 21,800), Black workers make up a little more than 15% (roughly 5,700), Asian workers make up almost 17% (about 6,400), and Hispanic or Latino workers make up almost 9% (roughly 3,400).

4. Washington, D.C.

Washington D.C.
f11photo / Shutterstock.com

In Washington, D.C., the total number of workers in STEM amounts to about 49,100. The roughly 18,600 women in these jobs make up almost 38% of this total, and the more than 30,400 men make up roughly 62%. Despite this disparity, Washington ranks the best for gender diversity in our study.

In terms of race, Hispanic or Latino workers comprise almost 10% of STEM workers, Asian workers comprise less than 5%, and Black workers make up more than 24% (which is the highest percentage for this demographic in the study). The remaining roughly 57% of STEM workers are white.

5. New York, NY

New York City coastline
IM_photo / Shutterstock.com

New York, New York, has the highest number of workers in STEM across all 35 cities, at almost 215,700. The total includes almost 68,700 women (about 32%) and more than 147,000 men (68%).

New York City ranks second-best on racial/ethnic diversity in our study. About 108,800 of STEM workers in New York City, or about 50%, are white. Almost 14% are Black, about 29,500. More than 22% are Asian, almost 48,400. Hispanic and Latino workers in the field total about 12%, at about 26,300.

6. Chicago, IL

Chicago, Illinois
f11photo / Shutterstock.com

There are about 95,100 STEM workers in Chicago, Illinois. Of this total, about 68% are men and about 32% are women.

More than 57% of STEM workers in Chicago are white, about 11% are Black, almost 16% are Asian and close to 15% workers are Hispanic or Latino.

7. Houston, TX

Houston, Texas
Sean Pavone / Shutterstock.com

The total number of STEM workers in Houston, Texas, exceeds 79,500. Almost 70% of the total STEM workers there are men, and more than 30% are women.

Houston has the third-best race/ethnicity index score in the study: More than 19% of STEM workers are Hispanic or Latino, almost 20% are Asian, and more than 8% are Black.

8. Los Angeles, CA

Los Angeles
ESB Professional / Shutterstock.com

There are almost 98,600 STEM workers in Los Angeles, California. More than 68,750 of them (about 70%) are men, and about 29,800 (just 30%) are women.

Los Angeles has the fourth-best race/ethnicity index in the study. Almost 26% of all STEM workers are Asian, almost 19% are Hispanic or Latino, and more than 4% are Black. About 48% are white (which is the lowest percentage for this demographic in the top 10).

9. Dallas, TX

Dallas, Texas
Sean Pavone / Shutterstock.com

Though almost 72% of STEM workers in Dallas, Texas, are men, the city ranks best overall in terms of its race/ethnicity diversity score.

Black workers comprise almost 18% of the STEM workforce, Asian workers comprise more than 16%, Hispanic or Latino workers almost 14%, and white workers just shy of 50%.

10. Fort Worth, TX

Fort Worth, Texas
Dean Fikar / Shutterstock.com

Of the total approximately 25,700 STEM workers in Fort Worth, Texas, about 17,600 are men (just over 68%) and about 8,100 are women (roughly 32%).

In terms of race, less than 5% of workers are Asian, about 12% are Black, and about 22% are Hispanic or Latino. Almost 53% are white.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Majority of Home Buyers Expected to be Hispanics, African-Americans, and Other Minorities

A very significant change in homebuyer demographics is expected during the next 20 years. Will it also have a significant effect on home values? The January 2021 Urban Institute report (The Future of Headship and Homeownership) finds:

Net growth in the number of homeowners from 2020 to 2040 will be entirely among people of color, especially Hispanic homeowners. Between 2020 and 2040, there will be 6.9 million net new homeowner households, a 9 percent increase. Hispanic homeowners will grow by 4.8 million, homeowners of other races (mostly Asian homeowners) will grow by 2.7 million, and Black homeowners will grow by 1.2 million. The total number of white homeowners will decline by 1.8 million.”

Latin Americans

If this proves to be true, it will require changes for the entire residential real estate industry. Just to begin with, what implications will it have for future home values? Many studies conducted over the past several decades continue to show that neighborhood racial composition still drives unequal home values. Many laws have been in effect for over 50 years that prohibit real estate professionals from explicitly using race when evaluating a property’s value. But change has been very slow.

Appraisers continued to value homes in white neighborhoods as worth more than similar homes in Black and Latino communities. Research shows that since 1980, in similar social-economic neighborhoods, dominantly white home values have appreciated an average of $200,000 more than in neighborhoods of color. If this continues, home value appreciation will be suppressed as white homeownership declines and minority ownership increases.

One fact supporting the probability that Hispanic homeownership will increase is that the Department of Housing and Urban Development (HUD) announced in January that it is extending eligibility for FHA mortgages to immigrants under the Deferred Action for Childhood Arrivals (DACA) program. This means that “Dreamers” who are legally permitted to work in the U.S., are now eligible to apply for FHA-backed mortgages. Dreamers make up the age demographic most active in home purchases. DACA participants include undocumented immigrants that arrived in the U.S. before their 16th birthday and were less than 31 years old when the program was established on June 15, 2012. In addition to 4.8 million new homeowners, the number of Hispanic rental households is expected to increase by 3.8 million.

More changes will be needed in the real estate lending industry. According to a MarketWatch analysis of Home Mortgage Disclosure Act data, African-Americans make up 13% of the country’s population, but they only received 6% of the mortgages that were originated in 2016. Furthermore, as a result of the Great Depression, lending requirements became much more stringent and that disproportionately causes even fewer black and Latino mortgage applicants to be approved. Less access to loans is likely to further obstruct price increases.

Homeownership trends, demographics, and lending policies are at a crossroads. Without meaningful change, the long steep climb in home value appreciation can be expected to slow significantly. As the largest asset owned by the vast majority of Americans, this endangers wealth accumulation.

Please leave your comment.

Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to askbrian@realtybiznews.com.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.

Source: realtybiznews.com