Owning a home is one of the main ways people create wealth in this country, so the fact that nearly 75% of white households own their homes, compared to 44% of black households, explains in much of the persistent wealth gap.
The Consumer Financial Protection Bureau came out with new data dig into this disparity. Although black Americans made some gains in homeownership last year, they were much more likely to be denied a mortgage than other racial and ethnic groups.
About 7% of new home loans went to black buyers in 2019, up from 6.7% in 2018.
It’s an improvement, said Nikitra Bailey of the Center for Responsible Lending, but, she said, “African Americans continue to be underserved in the mortgage financing system relative to their general population. “
More than 13% of the American population is black.
Although loan refusals have declined overall, 16% of black applicants were refused a mortgage last year, compared to 7% of white borrowers. By far the most common reason cited by lenders was a borrower’s debt-to-income ratio.
Traditional measures of risk like debt-to-income ratios disproportionately harm black borrowers, said Henry Louis Taylor Jr., professor of urban and regional planning at the University of Buffalo.
“They won’t do well because of the low incomes they traditionally have and the debts they acquire just by trying to make ends meet,” he said.
Research has shown this ratio is not the best predictor of default.
This week, the Consumer Financial Protection Bureau proposed a rule this could allow borrowers with higher debt-to-income ratios to qualify for loans. The current standard would be replaced by a measure that weighs affordability based on the annual interest rate.
“What we don’t know is if, with that extra variable, are you really going to increase the loan pie?” said Karan Kaul, senior research associate at the Urban Institute’s Housing Finance Policy Center. “Are you going to reduce it or does it stay about the same?”
And if the loan pie goes up, who gets the bigger share?