When the Mortgage Bankers Association President David H. Stevens told an audience recently that 56% of American blacks who applied for a conventional mortgage in 2012 were denied, he set off a firestorm.
Shortly thereafter, a spokesman from Fannie Mae, the quasi-public entity that commonly purchases these types of loans, as well as Josh Rosner, an analyst from Graham Fisher & Co., repudiated the claim, saying that the analysis of Home Mortgage Disclosure Act information was incorrect.
There is no denying, however, what Stevens labeled "an alarming trend": African Americans are consistently denied conventional mortgages at a higher rate than any other demographic, and things don't seem to be improving.
Discriminatory lending practices against minority borrowers are nothing new. The devastating effects on minority neighborhoods of such practices in the 1960s and 1970s – so-called "redlining" – led to the passage of the Home Mortgage Disclosure Act of 1975, as well as the Community Reinvestment Act of 1977. Years later, the housing boom seemed to bring such activities back, in force.
It is notable that such biased lending was still taking place in 2012 – even as banks like Citizens Republic Bancorp. and Wells Fargo were in the midst of settling lawsuits speaking to their biased lending practices during the housing bubble. In those cases, banks were accused of denying conventional mortgages to black and Hispanic borrowers and signing them up instead for subprime loans – despite knowing that those applicants qualified for the safer mortgages.
Biased practices continue
Although Stevens apparently massaged statistical numbers a bit to arrive at his high percentage of African-American mortgage denials, he needn't have bothered. The numbers are embarrassingly high without adding in, for example, manufactured housing loans, which, unless the land is part of the purchase, are not generally purchased by Fannie Mae or Freddie Mac.
Perusing the documents upon which the debate is based is enlightening. The raw HDMA data shows that 39.6% of loan applications from blacks were denied, compared to 24.6% for Hispanics, and 14.5% for whites. The Federal Reserve came up with somewhat different percentages, using that same statistical data. They found a 32% denial rate for blacks, 20.5% for Hispanics, and 11.6% for whites.
Zillow took a swing at the same data, and came out with different denial percentages, as well: 25.4% for blacks, 21% for Hispanic, and 10.6% for whites. The recurring theme, however, is that African-Americans always experience a higher level of conventional mortgage denials, no matter who crunches the data.
Not only is this type of institutionalized bias just plain wrong, but it also hurts the entire economy. Without a robust housing market, the damaged economy will continue to sputter – and, when one demographic is continually denied the opportunity to participate in that vital economic sector, everyone suffers.
Until every family that can afford to purchase a home is able to do so, the housing market will never truly recover. Unfortunately, it appears that we are not much closer to that goal than we were 50 years ago.