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The Changing Patterns report from the Massachusetts Community & Banking Council (MCBC) has for 25 years identified persistent disparities in mortgage loan approvals among diverse applicants. New Home Mortgage Disclosure Act (HMDA) reporting requirements could be the key to identifying and addressing the causes for those differences – if the data is ever made public.
According to the most recent Changing Patterns XXIV report, based on 2016 data, no mortgages were sold to black applicants in 134 (38 percent) of the 351 municipalities in the commonwealth. No mortgages were sold to Latino applicants in 75 (21 percent) of communities in the state.
In 65 communities (19 percent) no loans were sold to either black or Latino applicants – which is an improvement from 2015, when 85 communities (24 percent) had no black or Latino applicants.
These disparities have less to do with bigoted loan originators and more to do with the centuries of discrimination toward and marginalization of people of color, economist and Changing Patterns author Jim Campen said at the MCBC Innovation forum last week.
“My feeling is that the great majority of the racial disparity we see is the result of decades and centuries of exploitation,” Campen said. “Private and public actions that have left black folks in particular with low wealth, inferior education, criminal histories, et cetera, which combine to leave them less creditworthy.”
Family wealth is an important component, Campen said. Many young, white buyers can afford Greater Boston’s hefty down payments only with help from their families. Black families on average have less wealth and can’t help their children as much financially.
Jim Morrison
A 2015 report from the Federal Reserve Bank of Boston found the median net worth of a non-immigrant, black household in Boston to be $8. White households had a median wealth of $247,500, according to the report, “The Color of Wealth in Boston.”
Wealth inequality is a bigger obstacle to homeownership than discriminatory lending practices, Campen said, though he acknowledges racial biases exist in lenders, like every other population.
“Where you look for discrimination, you’ll probably find it, but that’s not a big part of the story,” he said. “If you’re a creditworthy black buyer with the ability to pay a mortgage looking for a home in Greater Boston right now, you’ll probably find it with a bit of persistence.”
Nearly 44 percent of mortgages sold to black borrowers were for properties in just five municipalities: Brockton, Boston, Randolph, Springfield and Worcester. Similarly, 40 percent of all mortgages sold to Latino borrowers were for properties in seven municipalities: Boston, Lawrence, Lynn, Methuen, Revere, Springfield and Worcester.
On the positive side, the share of non-FHA home purchase loans sold to black and Latino borrowers has increased in recent years.
Applicants of Color Disproportionately Denied
The denial rates on non-FHA home purchase loan applications by blacks and Latinos throughout the state were much higher than the corresponding denial rates for whites in 2016. In Boston, blacks were three times more likely to be denied a loan than whites (16.6 percent vs. 4.7 percent), almost two and a half times as likely in Greater Boston (12.1 percent vs. 5.1 percent), and slightly more than twice as likely statewide (13.7 percent vs. 6.6 percent), the report found.
Latino were denied non-FHA home-purchase loans at about twice the rate of white applicants. Though black and Latino applicants on average had substantially lower incomes than white applicants, the higher denial rates experienced by blacks and Latinos cannot be explained by their lower incomes.
“When applicants in Boston, in Greater Boston and statewide are grouped into income categories, the 2016 denial rates for blacks and for Latinos were generally well above the denial rates for white applicants in the same income category,” the report said. “For example, in Greater Boston the denial rates for applicants with incomes between $101,000 and $125,000 were 9.3 percent for blacks, 9.1 percent for Latinos and 4 percent for whites.”
Further clouding the issue, HMDA data is only collected for loan applicants; there is no data on prospective homebuyers who are discouraged or frustrated before they begin the process.
The Questionable Future of Data
Since lenders began collecting and reporting about twice as much HMDA data as they used to this year, some in the industry are optimistic that additional data will better explain the reasons for racial disparities in lending.
“We’re ready to collect and report that data,” said Deborah Sousa, executive director of the Massachusetts Mortgage Bankers Association. “I think it will help explain the higher denial rates for blacks and Latinos. We’re going to have an amazing amount of documentation. Hopefully we can take that data in two or three years and know where we need to spend resources to address those discrepancies.”
But Sousa’s optimism isn’t universal. Campen said the Trump administration’s goal of rolling back federal regulations for financial institutions coupled with the appointed head of the CFPB, Mick Mulvaney, testifying before a Congressional subcommittee in 2015 and saying, “I don’t like that the CFPB exists,” leaves him skeptical.
“The CFPB mission statement has been revised,” Campen said. “It used to say they would ‘consistently and fairly enforce consumer laws.’ Now it says they will ‘consistently enforce consumer laws.’ They took out the word fairly.”
Campen fears many institutions could be exempted from the new HMDA reporting requirements, that the requirements will be partially or completely rolled back, or that the additional data may never be made public.
“If the data became public it would be very useful,” he said. “They were never going to make individual credit scores public. Even if they did collect it, it would only be there for the regulators to see, to the extent they wanted to look for discrimination.”
The Mel King Institute for Community Building is offering bias training for real estate professionals in February.
