Historically, racial, ethnic, and other biases have affected homeownership. Even in regions where it has improved, subsequent studies have described the overall decline in racial disparity in housing as “slow, uneven, and unstable.” 1 There has been little or no progress in certain regions. Events such as the 2008 Great Recession and the COVID-19 epidemic reduce minority homeownership rates, notably in Latinx and Black communities. According to other research, LGBTQ+ populations suffer similar difficulties in obtaining finance.
Despite the existence of laws against housing discrimination, research demonstrates that racial bias—particularly in the mortgage approval process—maintains racial segregation and influences the racial wealth disparity.
KEY LESSONS
Homeownership accounts for almost 30% of the world’s household wealth, making mortgage lending a vital sector.
Mortgage approval refers to the steps involved in obtaining a house loan.
Although aggressive loan discrimination methods have been reduced or eliminated, racial prejudice in the lending process continues to perpetuate segregation and impact the racial wealth disparity.
Since the passage of the Fair Housing Act in 1968, the housing gap between minorities and white families has grown, owing mostly to the effects of the 2008 Great Recession.
Algorithmic lenders do not completely remove inadmissible prejudice as defined by American law and laws across the world
Discrimination in its Many Forms
For many families, their house is their single most valuable asset, accounting for a sizable chunk of their entire worth. This is especially true for non-white and Hispanic households, whose homes might account for up to 40% of their total wealth:
Black families: $57,694, accounting for 41.2 percent of total wealth.
Hispanic families: $69,055, accounting for 37.9% of total wealth.
Asian or other families: $218,937, accounting for 30.7 percent of total wealth.
White non-Hispanic families: $205,145, accounting for 22.8 percent of total wealth.
Because most people cannot afford to buy a home outright, they must be authorized for a loan. This approval procedure consists of a number of processes that will assist customers in obtaining a mortgage. The financing sector is critical to homeownership and is a growing industry. Freddie Mac predicts that home demand will rise despite the COVID-19 outbreak. In fact, the agency predicts that house sales will hit 6.9 million in 2022 and climb to 7 million in 2023, with mortgage originations increasing from $2.1 trillion in 2022 to $2.2 trillion the following year.
A detailed evaluation of the evidence presented by the Urban Institute in 1999 discovered that minority homeowners in the United States suffered discrimination from mortgage lending companies in two ways:
Differential Treatment happens when qualified minority homeowners are discouraged from obtaining a loan, are denied a loan, or are provided disadvantageous loan conditions because of their race or ethnicity.
Disparate Impact: This type of discrimination occurs when minority loan applicants are excluded at a greater rate than whites for reasons that cannot be justified as a business need, even if the reasons for this discrepancy are not immediately apparent.
The most blatant kinds of mortgage loan discrimination are direct rejections of house availability. Direct denials are becoming less common. Housing inequities among whites, Blacks, and Hispanics have also decreased, but their persistence suggests discrimination.
Homeownership and Mortgage Discrimination
The Fair Housing Act forbids any kind of housing discrimination. The 1968 law prohibited housing discrimination based on race, religion, gender, family situation, handicap, or ethnicity. The purpose was to ensure that everyone has access to homes, regardless of income.
Despite the statute, Black Americans’ homeownership rates remain disproportionate to white Americans’. This implies that discrimination is still occurring and has an influence on minority homeownership rates. According to Alanna McCargo of the Urban Institute, there is a huge racial and ethnic homeownership divide that is widening. “We are losing ground, not merely failing to make progress.” And we can’t keep going backward.”
As of the fourth quarter of 2021, more than 74% of homeowners were non-Hispanic white Americans.
According to the St. Louis Fed.1011, that compares to 43.1 percent of Black Americans and 57.6 percent of all other races, including Asian, Native Hawaiian, and Pacific Islanders. According to McCargo, black and Hispanic customers who purchased houses during the peak of the housing bubble were more likely to be granted subprime loans than whites and Asian Americans, even when they qualified for prime loans, and their recovery rates were slower than whites.
Segregation and Disparate Rejection Rates
A 2020 meta-study from Northwestern University found that racial prejudice in mortgage financing remained. While most types of housing discrimination have decreased or stopped (including the most extreme kinds, such as lying about the availability of advertised housing units), the study’s authors claim that Black and Hispanic borrowers continue to encounter disproportionately high percentages of rejection.
According to the report, racial disparities in loan denial narrowed marginally between the 1970s and 2020, but disparities in mortgage prices persist for Blacks, Hispanics, and Asians. Discrimination like this reinforces racial segregation by directing individuals with weak preferences to communities populated by people of similar racial origins. This just contributes to exacerbating the racial wealth disparity.
Other research support this result, such as a 2019 LendingTree report that found racial variations in lending refusal rates. According to the research, Black borrowers have the greatest denial rates (17.4%), while non-Hispanic Whites have the lowest (7.9%).
LGTBQ+ couples encounter prejudice in the mortgage loan business as well. These couples received 73% more loan rejections than heterosexual couples with comparable applications. They were also more likely to face greater fees and interest rates.
Laws and Discrimination in the Past
Historically, discrimination has affected the mortgage approval process in the United States. Some see housing discrepancies as a persistent legacy of past inequality.
During the twentieth century, the Federal Housing Administration (FHA) pushed white middle-class homeownership. However, the techniques it employed, such as redlining and restrictive covenants, prevented minorities from obtaining federally subsidized housing and mortgage insurance.
As previously stated, the Fair Housing Act makes housing discrimination on the basis of race, ethnicity, or other characteristics illegal. The Fair Housing Act, a follow-up to the 1964 Civil Rights Act, was passed in the days following the assassination of Martin Luther King Jr., who became involved in the campaign for fair housing during the 1966 open housing marches in Chicago. 17 According to others, the fundamental goal of the Fair Housing Act was to “reduce discrimination in the housing industry.”The Equal Credit Opportunity Act (ECOA) of 1974 expanded safeguards for dealings with establishments that commonly grant credit, such as banks and other lending organizations. It renders discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance unlawful.
warning
Discrimination in housing is unlawful. There are actions you may take if you believe you have been discriminated against because of your race, religion, gender, marital status, use of public assistance, national origin, handicap, or age. Filing a report with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development is one such process (HUD).
