Black Detroit subway residents more likely to be denied mortgages
Mortgage applications from black homebuyers in the Detroit metro area were more likely to be denied, with nearly 40% of black applicants facing rejection, compared to 18% of white homebuyers.
That’s according to a report released last week on barriers to homeownership and wealth creation in Detroit. The analysis is part of a larger project in 10 US cities. Researchers from the Urban Institute, a Washington, DC-based nonprofit research organization, looked at homeownership trends in Detroit before the COVID-19 pandemic and the resumption of the predominantly black city after the Great Recession.
“The Detroit Market Report echoes national history – the lack of affordable housing across the country, decades of divestment, lower household incomes, lack of new homes, and exclusive housing practices have all created barriers to homeownership everywhere, but particularly in Detroit, ”said Laurie Benner, associate vice president of programs for the National Fair Housing Alliance, which commissioned the report.
The report identified strong racial disparities in homeownership in the Detroit Metropolitan Statistical Area, which includes Detroit, Warren and Dearborn. According to researchers, access to credit and traditional financial institutions as well as down payment assistance can help close the homeownership gap.
The data comes from the American Community Survey and the Home Mortgage Disclosure Act of 2019, among other sources.
Here are some of the main takeaways:
- Mortgage applications from black and Hispanic homebuyers were more likely to be denied, according to an Urban Institute analysis of 2019 Home Mortgage Disclosure Act data. Just over half of black and Hispanic applicants in Detroit were rejected, compared to 22% for white buyers. In the Detroit subway, the refusal rate was 39% for black applicants, 31% for Hispanic buyers, and 18% for white buyers.
- Forty-five percent of borrowers who applied to buy a home in Detroit were turned down for a mortgage, compared with 24% in metro Detroit and 21% nationally.
- In Detroit, 90% of households live in homes built before 1980, compared to 68% in the greater Detroit area and 51% in the United States. In Detroit and the Detroit metro area, a greater proportion of black households live in homes built before 1960. Older homes may require major maintenance and repairs.
- The median household income in Detroit was about half that of the Detroit metro area. In both regions, black households had the lowest median household income among all of the racial categories measured.
- Homeownership rates for all racial and ethnic groups – except Hispanic households – have fallen steadily in Detroit since 2005. Homeownership among blacks was lower in the metro area. of Detroit, 42%, than in the city, 45%, stating “that black households struggle to become homeowners at both levels of geography,” the researchers wrote. This compares to a homeownership rate. 78% for white Detroiters and 53% for white Detroiters.
- More than a quarter of Detroit homeowners were “overburdened with housing costs,” meaning they spend 30% or more of their income each month on mortgage payments, insurance, property taxes, and utility payments. The share of households burdened by housing costs has declined since 2005. There are more renters burdened by housing costs in Detroit, compared to the region and the United States.
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The three most common reasons for mortgage rejection were the applicant’s credit history, debt-to-income ratio, and collateral, the researchers note. Just over half of black households in Detroit and 46% in the metro area said credit history was the reason for their denial, according to 2019 Home Mortgage Disclosure Act data.
“Overwhelmingly, black and brown communities have a dearth of banks and an excess of payday lenders and check-cashing establishments who tend to charge exorbitant interest rates and have onerous repayment terms. , so access to credit and access to traditional financial products is a big part of that solution, ”said Benner.
Lenders in 2019 were more likely to reject home loans to people of color than white buyers with similar financial characteristics, according to an August survey by nonprofit news organization The Markup. Nationally, lenders were 80% more likely to turn down black applicants compared to similar white applicants.
“There is inherent discrimination in the loan system,” Benner said. “There are algorithmic biases in computer-generated lending models and it really goes back further than that, going back decades of exclusionary policies and laws.”
The lack of loans in Detroit is a “major problem,” said Steve Tomkowiak, executive director of the Fair Housing Center of Metropolitan Detroit. Last fall, the Wall Street Journal reported that less than a quarter of homes in Detroit were funded by mortgages in 2019, the smallest share in the nation’s 50 largest cities.
The increase in homeownership in Detroit must be associated with higher incomes, said Anika Goss, CEO of Think Thank Detroit Future City.
“The Detroit people need to make more money, we need to pay more, we need to reduce the burden of costs. number of concentrated neighborhoods where there is home ownership, ”she said.
Small dollar loans and down payment assistance programs can open pathways to homeownership in Detroit, said Jung Choi, senior associate researcher at the Urban Institute and one of the report’s authors.
“In the long run, we find that in most US markets, if you own a home, you will likely have greater opportunities for wealth building,” she said.
Nushrat Rahman covers economic mobility issues for the Detroit Free Press and Bridge Detroit as a member of the corps with Report for America, an initiative of the GroundTruth Project. Make a tax-deductible contribution to support their work at bit.ly/freepRFA.