Black mortgage applicants are denied 84% more often than whites

Rhea-AI Summary

On January 13, 2022, a Zillow analysis of HMDA data revealed that Black mortgage applicants face a denial rate 84% higher than white applicants, up from 74% in 2019. Currently, 19.8% of Black applicants are denied mortgages, compared to 10.7% for white applicants. The disparities are most pronounced in Mississippi, Louisiana, Arkansas, and South Carolina. Although there have been improvements in Black homeownership since the Great Recession, challenges remain, including credit access barriers and economic impacts from the pandemic.

Positive

• Zillow launched a down payment assistance tool to support potential buyers.
• Recent changes by Fannie Mae and Freddie Mac allow rental payments to be counted towards credit history.

Negative

• The homeownership rate for Black applicants, though improved since the Great Recession, remains significantly lower than its peak of 49.7% in 2004.
• Black applicants face the highest mortgage denial rates among all demographic groups, with 19.8% denied in 2022.

SEATTLE, Jan. 13, 2022 /PRNewswire/ -- The Black homeownership rate that ticked up before the pandemic has again begun to fall, spurred by a widening mortgage approval gap between Black and white applicants. A Zillow analysis of data from the Home Mortgage Disclosure Act (HMDA)¹ shows that while overall denial rates have decreased, Black applicants are increasingly more likely than white borrowers to be denied a mortgage.

Black applicants are denied a mortgage at a rate 84% higher than that of white applicants — a big jump from 2019, when the disparity sat at 74%. In the U.S., 19.8% of Black applicants are denied a mortgage, the highest among all races, and much higher than the 10.7% of white applicants who are denied. Black applicants have the highest denial rates in Mississippi (31%), Louisiana (26.1%), Arkansas (26%) and South Carolina (25.8%).

"Homeowners have seen a plethora of housing gains during the pandemic, but the growing disparity between Black and white homeownership rates and home values paints the picture of who those winners actually are," said Zillow economist Nicole Bachaud. "While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines. Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity."

More than 6% of Black applicants are denied based on credit history, accounting for over one-third (37%) of all Black borrower denials. Limited traditional financial services in Black and other communities of color is a significant factor in credit history. Black communities have a higher number of nontraditional services, such as payday lenders, which contributes to poor credit health.

While the Black homeownership rate has risen from the depths it hit following the Great Recession, it remains far below the peak of 49.7% reached in 2004. Becoming a homeowner is the first step — but hardly the last — in the journey to housing parity. Black-owned home values continue to lag behind those of other races, and are still worth 16.7% less than homes overall. Black-owned home values are appreciating at higher rates than homes overall, but would take over 22 years to catch up, at this year's forecast rates of growth.

Households of color, as well as renters and lower-income households, were more likely to report encountering housing and economic challenges due to the pandemic. Black households were more likely than white households to report a job or income loss and difficulty keeping up with mortgage or rent payments. This disproportionate impact of the pandemic on Black households has stalled efforts to close gaps in credit access, homeownership, home values and mortgage denial rates, slowing the journey to equity even more.

While there has been progress in increasing Black homeownership since the Great Recession, there are still many challenges on the way to achieving equity. Closing the credit and financial access gap is a good start to get more Black renters on the path to homeownership. The recent adoption of policies by Fannie Mae and Freddie Mac allowing rental payments to count towards credit history is a step in the right direction and a good example of how policies can be used to target these issues. Zillow recently launched a down payment assistance tool on all for-sale listings to help potential buyers see the number of potential down payment assistance programs that may be available to them.

About Zillow Group
Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make it easier to unlock life's next chapter. As the most visited real estate website in the United States, Zillow® and its affiliates offer customers an on-demand experience for selling, buying, renting or financing with transparency and ease.

Zillow Group's affiliates and subsidiaries include Zillow®, Zillow Offers®, Zillow Premier Agent®, Zillow Home Loans™, Zillow Closing Services™, Zillow Homes, Inc., Trulia®, Out East®, ShowingTime®, Bridge Interactive®, dotloop®, StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org).

1 The Consumer Financial Protection Bureau (CFPB) maintains a public database of data collected from mortgage lenders under the Home Mortgage Disclosure Act (HMDA). The data referenced in this report is from 2020 HMDA data.

 

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SOURCE Zillow

FAQ

What is the mortgage denial rate for Black applicants compared to white applicants?

Black applicants are denied mortgages at a rate 84% higher than white applicants.

What percentage of Black mortgage applicants were denied in 2022?

In 2022, 19.8% of Black mortgage applicants were denied.

Which states have the highest mortgage denial rates for Black applicants?

Mississippi (31%), Louisiana (26.1%), Arkansas (26%), and South Carolina (25.8%) have the highest denial rates.

How has the Black homeownership rate changed since the Great Recession?

The Black homeownership rate has improved since the Great Recession but still remains below the peak of 49.7% reached in 2004.

What initiatives are being implemented to improve mortgage access for Black applicants?

Zillow has launched a down payment assistance tool, and Fannie Mae and Freddie Mac now allow rental payments to count towards credit history.