More than 50 years after the federal Fair Housing Act took aim at discrimination in the housing market, and four decades after the Home Mortgage Disclosure Act did the same by shining a light on lending practices, blacks are still twice as likely as whites to be denied a mortgage, according to a new national study.
And Buffalo Niagara is no exception, according to the analysis by Clever Real Estate, a St. Louis-based online agency that pairs sellers with agents at discounted prices.
Clever used federal data to examine approval and denial rates for some 1.7 million home mortgage applicants across the 50 states.
The study’s bottom line: African American applicants are twice as likely to be denied mortgages as white applicants, even when controlling for income, according to Clever's "Exploring Racial Discrimination in Mortgage Lending: A Call for Greater Transparency."
Clever found that 19% of African Americans were denied mortgages, compared to only 9% of whites.
Clever’s findings mirror those from Reveal at the California-based Center for Investigative Journalism, which looked at some 31 million records and concluded last year that "modern-day redlining persisted in 61 metro areas even when controlling for applicants’ income, loan amount and neighborhood." According to Reveal’s "For People of Color, Banks are Shutting the Door to Home Ownership," applicants described "an uphill battle with loan officers who they said seemed to be fishing for a reason to say no."
In Buffalo Niagara, Clever found that the gap was similar to the national figure: 16% of blacks here were turned away from a key part of the American dream, compared to 8% of whites.
Clever didn’t break its data down by lender, but a spot check of 2016 Home Mortgage Disclosure Act data, the latest available, shows banks here have similar – or worse – gaps when assessing black and white applicants. At the locally based M&T Bank, for instance, just 3.8% of the 1,362 white applicants were denied conventional mortgages, compared to 18.8% of the 53 African American applicants. At Bank of America, 10.5% of the 218 white applicants were turned down locally, compared to 22.2% of the nine black applicants. At KeyBank, 12.2% of the 286 white applicants were denied, compared to 4 of the 10 black applicants.
Locally based Evans Bank had the lowest denial rates of the four big lenders here, turning down just 1.9% of its 202 white applicants, and 1 of its 12 black applicants for a rate of 8.3%.
Banks are aware of the disparity.
At M&T, they’ve already taken one of the key steps advocates recommend to close the gaps: broadening the criteria used to determine mortgage credit-worthiness. In addition to traditional measures, M&T also looks at utility payments, rent payments and auto loan payments, said Brad Dossinger, corporate Community Reinvestment Act officer. Including such payment histories lessens the reliance on credit scores, which critics say have a discriminatory impact and also are insufficient predictors of repayment performance.
M&T also takes other steps including lowering down payments to as little as 3% – or less in some programs – and implementing programs to provide up to $5,000 worth of help with closing costs for low- and moderate-income buyers. The bank also works with the Section 8 rental assistance program to use part of the rent voucher to cover mortgage payments to help turn renters into homeowners, Dossinger said.
In addition, the bank works with community groups ranging from the Buffalo Urban League to Housing Opportunities Made Equal to educate consumers about the various programs and build a pipeline of potential homeowners, he added.
Still, individuals have to decide when the time is right for them to take the plunge.
"We’re there when they’re ready," Dossinger said.
Evans Bank pointed to similar efforts, including home-buying seminars and workshops in partnership with community groups, block clubs and nonprofit housing organizations.
It also targets low- and moderate-income home buyers with programs that offer credits to reduce out-of-pocket costs and to reduce monthly payments by waiving mortgage insurance, spokeswoman Kathleen Rizzo Young said by email.
She said those programs include both acquisition and rehab funds so that buyers can also make repairs and help stabilize neighborhoods.
It’s hard to know how well such efforts by the banks are working, but the studies at least give us a public baseline now for assessing progress here.
Critics blame the persistent gaps on weak federal enforcement, with Reveal noting that 99% of banks pass the inspections called for under the Community Reinvestment Act. And enforcement is not likely to improve under a president who thinks race is an issue to be exploited rather than a factor that still colors too much of life in America.
Clever notes how the disparities can create a vicious cycle: Credit-worthy blacks denied conventional mortgages are forced to turn to the high-cost, high-risk subprime market, leading to more defaults and foreclosures, resulting in even lower credit scores the next time they seek a mortgage.
One bright spot, Clever notes, is that the Bureau of Consumer Financial Protection issued new rules that took effect last year mandating more disclosure and transparency on the part of lenders, including forcing them to specify why a mortgage is denied. That information had been considered optional under the Dodd-Frank financial reform bill, and Clever found that 52% of black applicants were never given a specific reason they were turned down, the highest rate of any racial group.
Given that the 2018 data will be a lot more comprehensive under the new rules, Clever promises a follow-up study when that data comes out.
Considering the importance of homeownership in closing the wealth gap between whites and blacks – which remains anywhere from 10-1 to 14-1, depending on which assets are measured – Clever won’t be the only one taking a keen interest in the future figures.
With gentrification threatening areas like the Fruit Belt near the burgeoning Buffalo Niagara Medical Campus, and the city in the midst of a revaluation, the gaps in lending rates take on added significance here.
It will be instructive to see how the local numbers change – or don’t – and see who’s included and who’s left out of this part of the American dream in the New Buffalo.