• Lenders deny mortgages for Black applicants at a rate 80% higher than that of white applicants, according to an analysis of the most-recent data from the Home Mortgage Disclosure Act.

• Applicants of all races — but especially Black applicants — are more likely to be denied when they live in predominantly Black ZIP codes.

• Although Black home values have seen recent improvement, they are still 17.6% below the typical U.S. home.

Black applicants are denied a mortgage at a rate 80% higher than that of white applicants, according to an analysis of the most-recent data from the Home Mortgage Disclosure Act. And Black applicants are more likely to be denied when they live in predominantly Black areas — troubling signs that, despite encouraging recent progress in advancing Black homeownership, the housing market still has far to go to fully heal the scars of a deeply unjust history.

After taking a disproportionate hit during the Great Recession and languishing in the early years of the past decade's housing recovery, the Black homeownership rate has risen notably in recent quarters and currently stands at 44% — its highest level since 2012. But despite recent gains, that number is still far behind the overall homeownership level (65.3% in 2020 Q1) and does not even begin to capture the hoops Black homeowners have to jump through to secure their dream home.

Applying for a mortgage can be one of the most stressful parts of the home buying process. According to Zillow survey data, Black home buyers are more concerned than white buyers about even qualifying for a mortgage (59% Black vs 46% white), and rightfully so. Even though mortgage denial rates have been falling over the past decade, huge inconsistencies still exist along racial lines. Overall, lenders deny mortgages to Black applicants at 1.8 times the rate of white applicants; for conventional loans, the denial rate is 2.2 times higher. That’s in large part because of inequality in the credit market — people of color are more likely to be victims of predatory lending or not have a credit history at all.

But it's not just the overall difference in denial rates that should cause concern. Where applicants are getting denied is also telling of the racial inequality that exists within the mortgage market. The graph below illustrates denial rates for home purchase loans at the ZIP code level for Black and white applicants, compared to the overall mortgage denial rate of the ZIP code. Black applicants are denied at higher rates than applicants of the ZIP code overall. This difference is especially stark when compared against white applicants, who often are less likely to be denied than the rest of the ZIP code. Black applicants are disproportionately plagued with these high denial rates, regardless of where they live.

But even more so, where these applicants live can also have an impact on the accessibility of homeownership. Mortgage denials trend higher overall as the population of a ZIP code becomes more Black, as seen in the following graph.

This provides further evidence of a growing wealth gap between Black and white households in the United States as both Black applicants and ZIP codes that are predominately Black are less likely to receive mortgages, barring them from accessing homeownership as a means to build wealth. The localization of mortgage denials is also a signal that redlining, though outlawed in 1968 under the Fair Housing Act, appears to have similar far reaching outcomes in housing markets in practice albeit through different, less explicit overt mechanisms. Not only are Black homebuyers concerned about qualifying for a mortgage, Zillow survey data from 2019 reveals that Black homebuyers are less likely to end up buying within their initial search area than white buyers (52% Black vs. 67% white). Additionally, Black buyers who stayed within their initial budget ended up further from school and work than their white counterparts (29% Black vs. 13% white), indicating that for Black homeowners to have access to the same amenities as whites, they have to pay up. Evidence of this is seen as the incidence of higher-priced home purchase lending was 2.7 times higher for Black applicants than white applicants in 2019. Redlining still exists in the ways it denies mobility to communities of color, in part due to the localization of mortgage denials in ZIP codes that are predominantly Black and keeps amenities and services out of reach for many minority homeowners and minority neighborhoods.

One illustration of the lack of amenities and services is that still today, considerably more non-traditional credit establishments exist in minority neighborhoods compared to banks, limiting access to traditional lines of credit and increasing the chances of credit delinquency due to the high interest rates and lack of regulations on payday loans and the like. Not surprisingly, in connection with higher instances of predatory lending, credit reporting and credit scores have a long history of disadvantaging consumers of color. This trend is paralleled in the mortgage market as lenders deny almost one out of every 15 Black mortgage applicants due to credit history, that makes up over a third (39%) of all denials for Black applicants. The disparity in available credit sources is just one of the explanations for the high denial rate on the grounds of credit. Another cause is the credit invisible: those who do not have any credit history and who are more concentrated in minority populations. Relying heavily on credit history in the mortgage market is just one cog in the cyclical dilemma that is hindering minority populations' ability to increase wealth in the formal financial sector. So while on one hand we are seeing an increase in Black homeownership rates, the glaring disparities and unequal opportunities that are presented in the mortgage market signal that we still have far to go.

The difficulties that Black homeowners face while applying for a mortgage do have an impact on the housing market as values of homes owned by Black people are significantly behind home values overall in the U.S. The graph below shows the Zillow Home Value Index, which measures home values across the country, split by race through 2017. The changes in growth among different racial groups is stark and, despite the recent accelerated growth of values of homes owned by Black people, there is still a 17.6% gap from the typical home in the country. Structural change in mortgages is necessary to ensure there is equal access to homeownership — and the wealth generating benefits that come along with it — across racial lines.

Methodology:

Zillow used the Home Mortgage Disclosure Act (HMDA) data from 2017 (most recent year available) to analyze the denial rates of mortgages along racial lines. The HMDA data was used at the ZIP code level, along with demographic data from the 2017 US Census Bureau's 5-year American Community Survey (ACS) to determine the racial population makeup for ZIP codes.

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