Black Americans Still Face Obstacles In Obtaining Credit, Mortgage Loans

Black Americans are denied access to credit far more than their white counterparts, according to a recent report from LendingTree (TREE), the online lending marketplace.

Specifically, regardless of income levels, in 2019, Black adults were denied credit – including credit cards, higher credit card limits, mortgages, refinancing, student loans, personal loans – 44% of the time (versus 19% for whites). Put another way, Blacks were denied or approved for less than the amount requested 57% of the time versus 24% for whites.

For families with households earning below $40,000, 58% of Black families had their credit applications denied last year, versus 40% of white families in the same income bracket.

“Highlighting these racial disparities shows that systemic issues have held back generations of our fellow citizens,” said Tendayi Kapfidze, chief economist at LendingTree, in a statement “It is ultimately to the detriment of everyone as the economy is deprived of our best efforts by denying opportunities to many capable people. The creation of these disparities was and is often government-sanctioned and enforced, and so they should be addressed via legislative remedies in addition to societal change."

Looking specifically at mortgages in the 50 largest metropolitan areas, a LendingTree study released last month revealed that Black Americans are more likely to be rejected for a home loan than the overall population of homebuyers – for both purchase and refinance mortgages.

On average, in 2019, Black homebuyers were denied mortgages 12.64% of the time – more than double the 6.15% denial rate for the whole population.

In the cities of Milwaukee, St. Louis and Cleveland, the spread between the denial rate for Black homebuyers and the overall denial rate for mortgage purchase loans were the highest – an average of 10.96%.

In Milwaukee, the mortgage purchase denial rate for black homebuyers was 17.73%, compared with an overall mortgage purchase denial rate of 5.57%. That equates to a spread of 12.16%.

Sacramento, Calif., Seattle, and San Diego had the narrowest spreads – an average of 3.45%.

With respect to mortgage refinance loans, Black borrowers were denied 30.22% of the time versus an overall denial rate of 17.07%.

Phoenix, Philadelphia and Denver had the largest spread between the Black denial rate for mortgage refinance loans and the overall denial rate – an average spread of 21.93%.

In Phoenix, more than one-third (35.08%) of black homeowners were rejected for mortgage refinance loans – versus an overall mortgage refinance denial rate of 12.51% in the city.

Dallas, Minneapolis and Miami had the narrowest spreads – 4.44% on average.

“Racial disparities in denial rates for purchase and refinance loans can be even more extreme on the county level,” LendingTree said. “In some counties, even those with relatively high Black populations, the denial rate for Black homebuyers and refinance borrowers alike can be as high as 100%. This can result in the spread between the overall denial rate and the denial rate for Black homeowners and buyers being over 90%.”

A recent study by Northwestern University in Chicago found that racial discrimination in the mortgage market has persisted over the past four decades – despite a reduction in discrimination in the housing industry itself.

“We find declines in most forms of discrimination, especially the more extreme forms like falsely claiming an advertised unit is no longer available,” said Lincoln Quillian, lead author of the study. “There is less reduction and considerable persisting discrimination in more subtle differences in treatment between whites and minorities.”

In the mortgage market, the Northwestern study found, that racial gaps in loan denials have declined “only slightly” and racial gaps in mortgage costs have “not declined at all.”

Black and Hispanic borrowers, they found, are more likely to be rejected when they apply for a loan and are more likely to receive a high-cost mortgage.

“It was distressing to find no evidence of reduced discrimination in the mortgage market over the last 35 years,” Quillian added. “Discrimination in the mortgage market makes it more difficult for minority households to build wealth through housing, contributing to racial wealth gaps. Discrimination in the housing market increases housing insecurity for minority households and contributes to persistent neighborhood segregation. These results help account for why Black homeownership has not increased over the last 35 years.”

The primary reason why Blacks are denied mortgages has to do with their debt-to-income ratios.

Henry Louis Taylor Jr., a professor of urban and regional planning at the University of Buffalo, said debt-to-income ratios disproportionately hurt Blacks.

“[Blacks are] not going to do well on that [risk measure] because of the low incomes that they have traditionally and because of the debts that they acquire just trying to make ends meet,” he told Marketplace.org.