NCPA - National Center for Policy Analysis

Income And Race In Mortgage Lending

August 30, 1997

Black Americans are still far less likely than whites to own their homes and more likely to be turned down for home mortgages. Some charge this is due to racial discrimination by mortgage lenders, but recent research suggests it has more to do with economics than race.

A 1996 study by the Federal Reserve Bank of Boston that factored in the effects of 38 variables, such as income and location of the property, found that had blacks been treated in the same way as whites, 21 percent would have been rejected, whereas 28 percent actually were. A followup study by the Chicago Federal Reserve Bank found that the loan officers in the Boston study treated objective information differently -- with bad credit histories and indebtedness cutting blacks' chances of approval far more than those of whites.

However if blacks were being widely discriminated against, then those who succeeded in getting mortgages should be less likely to default than whites.

  • Yet the rate of default rates on home mortgage loans is higher for blacks than whites, according to an Urban Institute study by four Federal Reserve economists.
  • They also found black-owned banks tend to reject a higher number of loan applications than white-owned banks, suggesting factors other than race at work.
  • Furthermore 95 percent of banks have programs to increase home mortgage lending to minorities, with the result that they attract a higher percentage of loan applicants who don't qualify for financial reasons.

One reason fewer blacks own their homes, say observers, is that 46 percent of black households were headed by women in 1995 compared to 14 percent for whites, and according to 1991 Census Bureau figures only half as many households headed by a woman can afford a median-priced home in their neighborhood compared to married couples.

Thus 78 percent of black households, compared to 47 percent of white ones, cannot afford to buy a median-priced home in their neighborhood on a 30-year fixed-rate mortgage.

Source: "Locked Out or Priced Out?" Economist, August 30, 1997.


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