Black applicants in NC, SC are more likely to be denied home loans. Here’s the data.
Black applicants in eight metro areas in the Carolinas are more likely to be denied home loans than white applicants with similar financial profiles, according to a new investigation on racial disparities in the lending industry.
The findings mirror disparities seen throughout much of the U.S. — and challenge the industry’s longtime explanation that higher denial rates are attributed to differences in financial characteristics, not race.
Reporting by The Markup, a nonprofit newsroom, revealed Black, Latino and Asian prospective borrowers were denied at higher rates than white applicants, despite similar lending qualifications such as debt-to-income ratio and the size of the loan relative to the value of the house they’re trying to buy.
One Charlotte-area mortgage firm was listed as being among the worst in The Markup’s study of racial lending disparities, the Observer reported Wednesday.
In 89 metropolitan areas in the United States, minority applicants were more likely to be denied conventional mortgages than similarly-qualified white applicants, according to 2019 federal data from the Home Mortgage Disclosure Act.
Despite faring better than other metro areas in the Carolinas, Black applicants in the Charlotte metro area were still 1.5 times as likely to be denied as white applicants.
They include borrowers like Crystal Marie and Eskias McDaniels, who despite strong credit scores, high incomes and savings for a down payment, received multiple denials from their loan officer’s underwriting department.
“I think it would be really naive for someone like myself to not consider that race played a role in the process,” Crystal Marie, who is Black, told the Markup.
The Charlotte-Concord-Gastonia metropolitan statistical area includes Mecklenburg and surrounding North Carolina counties, as well as three South Carolina counties.
The Markup, which co-published the investigation Wednesday with the Associated Press, shared data with journalists nationwide. The Charlotte Observer and The (Raleigh) News & Observer analyzed lending disparity data amassed by The Markup’s reporting to assess impact across North and South Carolina.
Among the findings:
- The Markup’s analysis used 17 variables, including race, sex, income debt-to-income ratio, loan amount and property value to determine how similarly qualified applicants of different races fared.
- Eight metro areas in the Carolinas had statistically significant disparities between white applicants and applicants of color.
- Wilmington and Florence had the greatest disparities for North and South Carolina, where Black applicants were 2.4 times and 2.5 times as likely to be denied than similarly qualified white applicants, respectively.
- Greensboro-High Point had the highest statistically significant disparity for Latino applicants in the Carolinas. They were 2.7 times as likely to be denied as white applicants.
- The Markup’s reporting found that algorithms used by lenders contribute to this disparity because it highly favors traditional credit, to which white Americans have historically had greater access.
Applicant credit scores were not included in the data analysis, because federal officials omit them from HMDA disclosures, citing borrower privacy.
Home ownership is considered a major factor in building generational wealth, and is often the largest investment a household makes.
Experts say the persistent racial disparities in lending have lasting effects on families’ financial stability, decades after racial discrimination in housing was outlawed with the 1968 Fair Housing Act.
A history of discrimination
The data came as no surprise to Floyd Davis, CEO of Charlotte-based housing nonprofit Community Link. Those disparities have roots in earlier discriminatory laws, he said.
Among them: redlining policies that denied access to loans for Black and other minority residents to reinforce housing segregation; the federal urban renewal program that bulldozed Black neighborhoods and displaced its residents, and Black veterans’ exclusion from G.I. Bill benefits such as low-interest mortgages.
Persisting disparities in loan denial rates only further those historical wrongs, said Davis, whose organization works with people who are homeless to find rental housing and work toward homeownership.
“That’s still part of the structural system that was built and they’re still at play today,” he said.
Rochelle Sparko is the director of N.C. policy at the Center for Responsible Lending, a nonprofit research and policy group based in Durham. She said that history of discriminatory policies allowed many white families to build the types of generational wealth over decades that can boost traditional measures of creditworthiness today.
For example, she said, loan applicants of color are more likely to be saddled with student loan debt that can hurt their credit rating or make it more difficult to save for a down payment.
“You can’t just change the rules and... and expect everything to work out after decades of helping white families,” she said. “It’s not going to even out on it’s own any more than it became racially disparate on its own.”
When people of color are denied loans while similarly qualified white borrowers are accepted, it deprives those households of the opportunity to build wealth and stability, Davis said.
What solutions exist?
Organizations like Greensboro-based Housing Consultants Group are working to close the gap on the local level.
Black applicants in the Greensboro-High Point metro area were 1.8 times as likely to be denied loans as similar white counterparts in 2019, the same year the housing nonprofit and the city of Greensboro launched a ‘”100 homes” goal to help first-time buyers with down payments and navigating the process.
The program helped 317 households close on a home in 2019 and 347 in 2020, nearly three-quarters of them people of color.
But the issue goes beyond individual programs, said Sofia Crisp, the organization’s founder and executive director.
“Fair housing needs to be a constant discussion,” she said. “So it’s on the mind of Realtors and on the mind of lenders (to say), ‘What you do has consequences and if you do something that is deemed to be in violation of fair housing, there are repercussions.”
There’s no one simple solution to address racial disparities in mortgage lending, Sparko said.
Eliminating student debt would make a significant impact for many borrowers of color, she said. The Center for Responsible Lending is also advocating for more rigorous enforcement of the Fair Housing Act.
Ultimately, she said, it will take more than “race neutral” lending policies to level the playing field.
“So much of our history of racialized wealth building and discrimination is so baked in right now,” Sparko said. “There’s a lot that needs to happen to unwind it in a meaningful and broad way.”
This story was originally published August 25, 2021 at 1:23 PM with the headline "Black applicants in NC, SC are more likely to be denied home loans. Here’s the data.."
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