How Mortgage Denial Rates Affect Homeownership

Homeownership is one of the most transformative opportunities to build intergenerational wealth and establish long-term stability in a community. But decades of discrimination have prevented Black Americans from pursuing the dream of homeownership.

One such obstacle is mortgage denial rates: Black homebuyers are more than twice as likely as white applicants to be denied a mortgage, ending the future possibility of homeownership. With the Black homeownership gap as wide as it has been since the 1960s, we must do more to develop anti-racist homeownership policies—including around mortgage and lending practices.

Despite a number of laws enacted to combat these inequities, racist practices still continue to this day. In January 2023, City National Bank was accused of discrimination for refusing to underwrite mortgages in predominantly Black and Latino communities.

The bank was required to pay over $31 million, marking the largest redlining settlement in history. With the settlement, City National will create a $29.5 million loan subsidy fund for loans to Black and Latino borrowers and spend the remaining $1.75 million on advertising, community outreach, and financial education programs to support minority borrowers.

Unequal access to lending hampers efforts by Black families to establish financial security and build intergenerational wealth, leading to dire long-term consequences.

Understanding Discriminatory Lending Practices

Access to Lending  

Credit scores play an important role in American life: From starting a business to buying a home, loans and credit unlock new doors and open viable pathways toward wealth accumulation.

However, Black Americans face discrimination at every phase of the home-buying process—including access to lending and credit. Although the 1974 Equal Credit Opportunity Act was supposed to bar credit-scoring systems from using information, such as race, to determine outcomes, chronic discrimination is still deeply embedded in the lending system.

Overall loan denials for both Black and white applicants have decreased since the 2008 financial crisis—but the gap in denial rates between Black and white applicants has not. Black borrowers experience higher mortgage denial rates than white and Asian borrowers. For Black loan seekers, the denial rate in 2020 was 18.1% compared to just 6.9% for white applicants.

Black applicants are also more likely to experience higher interest rates compared to white borrowers. An analysis of almost seven million 30-year mortgages demonstrated that Black and Hispanic applicants were charged 0.08% higher interest rates—which resulted in an extra $765 million in interest per year.

Access to Banks 

Another key element of discriminatory lending practices is inequitable access to banks and financial services.

Without bank accounts, Black Americans lack access to mainstream financial services which are necessary to accumulate savings, build a credit history, and establish intergenerational wealth. 46 percent of Black people in the United States are unbanked or underbanked—more than three times the percentage of whites who are unbanked.

Having a bank account is a helpful tool for building an emergency fund and gaining access to financial assistance. Without a bank account, families cannot establish creditworthiness—and without access to banking institutions in a particular community, residents will be more vulnerable to predatory lending practices and financial services that encourage cyclical debt, such as money orders or same-day lenders.

Policy Solutions for Racial Equity

To effectively repair decades of disinvestment and discrimination, substantial and multifaceted strategies are required. The home-buying process, including the availability of affordable for-sale homes, must be reimagined to develop a more equitable system.

The Brookings Institute outlines several key strategies, including:

Extend credit and down payment assistance. For borrowers impacted by discriminatory housing and lending practices, new credit and down payment assistance programs must be developed.

Small-dollar mortgage loan programs. One prevalent myth is that homes of lower value are a riskier investment for mortgages—but one analysis found that the opposite is true. Buyers of lower-value homes have comparable credit scores and their mortgages have similar loan-to-value ratios to more valuable properties.

Advocate for better, anti-racist credit scoring practices. Credit scoring prioritizes loan and credit card payments—but does not account for consistent daily payments like rent or utilities. By expanding the definition of credit-building and accounting for other payments, Black Americans will have the opportunity to build credit.

To learn more about our work leveraging the NMTC credit for affordable for-sale homeownership, follow us on LinkedIn.