How banks stop people of color from homeownership
PHILADELPHIA - Fifty years after the federal Fair Housing Act banned racial discrimination in lending, African-Americans and Latinos continue to be routinely denied conventional mortgage loans at rates far higher than their white counterparts.
This modern-day redlining persisted in 61 metro areas even when controlling for applicants' income, loan amount and neighborhood, according to millions of Home Mortgage Disclosure Act records analyzed by Reveal from The Center for Investigative Reporting.
The yearlong analysis, based on 31 million records, relied on techniques used by leading academics, the Federal Reserve and Department of Justice to identify lending disparities.
It found a pattern of troubling denials for people of color across the country, including in major metropolitan areas such as Atlanta, Detroit, Philadelphia, St. Louis and San Antonio. African-Americans faced the most resistance in Southern cities - Mobile, Alabama; Greenville, North Carolina; and Gainesville, Florida - and Latinos in Iowa City, Iowa.
No matter their location, loan applicants told similar stories, describing an uphill battle with loan officers who they said seemed to be fishing for a reason to say no.
“I had a fair amount of savings and still had so much trouble just left and right,” said Rachelle Faroul, a 33-year-old black woman who was rejected twice by lenders when she tried to buy a brick row house close to Malcolm X Park in Philadelphia, where African-Americans were 2.7 times as likely as whites to be denied a conventional mortgage.
Blacks turned away
In the 1930s, surveyors with the federal Home Owners' Loan Corp. drew lines on maps and colored some neighborhoods red, deeming them “hazardous” for bank lending because of the presence of African-Americans or European immigrants, especially Jews.
Redlining has been outlawed for half a century. And for the last 40 years, banks have had a legal obligation under the Community Reinvestment Act to solicit clients - borrowers and depositors - from all segments of their communities.
But in many places, Reveal found the law hasn't made much difference.
The analysis - independently reviewed and confirmed by the Associated Press - showed black applicants were turned away at significantly higher rates than whites in 48 cities, Latinos in 25, Asians in nine and Native Americans in three. In Washington, D.C., the nation's capital, Reveal found all four groups were significantly more likely to be denied a home loan than whites.
“It's not acceptable from the standpoint of what we want as a nation: to make sure that everyone shares in economic prosperity,” said Thomas Curry, who served as America's top bank regulator, the comptroller of the currency, from 2012 until he stepped down in May.
Yet Curry's agency was part of the problem, deeming 99 percent of banks satisfactory or outstanding based on inspections administered under the Community Reinvestment Act. And the Justice Department sued just nine financial institutions for failing to lend to people of color under the Obama administration.
Curry argued that the law shares part of the blame; it needs to be updated and strengthened.
“The Community Reinvestment Act has aged a lot in 40 years,” he said.
Weakened bank standards
Since Curry departed nine months ago, the Trump administration has gone the other way, weakening the standards banks must meet to pass a Community Reinvestment Act exam. During President Donald Trump's first year in office, the Justice Department did not sue a single lender for racial discrimination.
The disproportionate denials and limited anti-discrimination enforcement help explain why the homeownership gap between whites and African-Americans is now wider than it was during the Jim Crow era.
In the United States, “wealth and financial stability are inextricably linked to housing opportunity and homeownership,” said Lisa Rice, executive vice president of the National Fair Housing Alliance, an advocacy group. “For a typical family, the largest share of their wealth emanates from homeownership and home equity.”
The latest figures from the U.S. Census Bureau show the median net worth for an African-American family is now $9,000, compared with $132,000 for a white family. Latino families did not fare much better at $12,000.
Lenders and their trade organizations do not dispute the fact that they turn away people of color at rates far greater than whites.
But they maintain that the disparity can be explained by two factors the industry has fought to keep hidden: the prospective borrowers' credit history and overall debt-to-income ratio. They singled out the three-digit credit score - which banks use to determine whether a borrower is likely to repay a loan - as especially important in lending decisions.
UPDATED: Please read and follow our commenting policy: