Blacks More Likely to Get High-Cost Mortgages

Black borrowers were more likely to be saddled with high-cost mortgages when buying a home last year, reflecting the persistence of racial discrimination that is only slowly improving, a LendingTree economist said Thursday.

Researchers with the Charlotte, N.C.-based mortgage broker analyzed detailed 2019 data from the Home Mortgage Disclosure Act (HMDA) to look at the share of Black homebuyers and owners who received “high-cost” mortgage purchase and refinance loans in 2019.

LendingTree categorized high-cost mortgages as those with an APR higher than the benchmark Average Prime Offer Rate (APOR) defined by the Federal Financial Institutions Examination Council.

The data released Tuesday showed Black borrowers were more likely to receive high-cost loans than the overall population in all 50 of the nation’s largest metropolitan areas. The researchers said some of the disparity might be explained by income, employment history and credit scores.

Loan-level HMDA data includes credit scores and borrower income. LendingTree didn’t analyze those factors in this study, but academic studies have found that racial disparities exist even after accounting for those differences in credit quality, LendingTree Chief Economist Tendayi Kapfidze said.

“There’s a systemic industry problem, which unfortunately has been going on for decades,” he said. “It’s getting better, but more needs to be done.”

Kapfidze said one possible reason might be that Black borrowers are more likely to be anxious about getting approved for a mortgage, and once approved, they are so relieved that they are more likely to take the first rate offered.

“Once you get approved, you need to try to get the best deal rate possible,” he said.

In St. Louis, 1st Financial Federal Credit Union ($282.4 million in assets, 35,259 members) has been focusing on improving access to affordable loans and financial services for minorities. Efforts include credit-builder loans, car loans for near-prime borrowers and financial education.

Barriers to basic financial services that others use to build their credit scores are at the root of the system that results in higher rates for minorities, said Laura Woods, vice president of marketing and community presence for credit union, which is designated as a Community Development Financial Institution.

Woods said the credit union’s goal is to improve members’ financial skills and credit scores so they will be in a better position to qualify for lower-cost loans for their next needs in life – whether cars, education or homes.

Recent research from the Urban Institute showed credit scores are significantly lower in St. Louis’ minority neighborhoods than mostly white neighborhoods.

“They don’t have access to all lending opportunities, so that reduces their credit score quite a bit. So when they go to get that mortgage, it would be more expensive,” Woods said.

“It’s all about the ground floor of how we are approaching access to lending in every neighborhood, making sure we have a banking institution in every neighborhood that has accessible products and services,” she said. “That will be the equalizer to make sure every loan is affordable.”

The LendingTree survey showed the Midwest dominated the list of cities where the percentage of Blacks with high-cost purchase mortgages far outnumbered those for whites and other races. Kapfidze said the research wasn’t able to explain why the region dominated the list.

The average spread between the overall share of high-cost mortgage loans and the share of high-priced mortgage loans for Black buyers was 9 percentage points.

Cleveland, Detroit and Milwaukee were the metros with the widest spread, while San Antonio, San Diego and San Jose, Calif., were the metros with the smallest gap.

The average spread in the metros with the widest gap was 16.4 percentage points, compared with only 1.6 points in metros where the gap was narrowest.

Among the 10 metro areas with highest gaps, a median of 9.5% of all borrowers received high-cost purchase mortgages, while 20% of Black borrowers received high-cost mortgages — a gap of 12 percentage points. They were:

• Cleveland had 9.5% high-cost mortgages overall, and 26.6% among Blacks — a 17.1-point gap.
• Detroit had 9.9% high-cost mortgages overall, and 26.5% among Blacks — a 16.6-point gap.
• Milwaukee had 5.1% high-cost mortgages overall, and 20.5% among Blacks — a 15.4-point gap.
• Columbus, Ohio had 8.5% high-cost mortgages overall, and 22.3% among Blacks — a 13.8-point gap.
• Philadelphia had 7.3% high-cost mortgages overall, and 21.1% among Blacks — a 13.8-point gap.
• Chicago had 9.4% high-cost mortgages overall, and 23.1% among Blacks — a 13.7-point gap.
• St. Louis had 6.6% high-cost mortgages overall, and 19.4% among Blacks — a 12.8-point gap.
• Jacksonville, Fla., had 9.6% high-cost mortgages overall, and 21.8% among Blacks — a 12.2-point gap.
• Louisville, Ky., had 7.8% high-cost mortgages overall, and 19.9% among Blacks — a 12.1-point gap.
• Baltimore had 6.5% high-cost mortgages overall, and 18.5% among Blacks — a 12.1-point gap.

Among the 10 metro areas with the lowest gaps, a median of 4.5% of all borrowers received high-cost mortgages, while 11.3% of black borrowers received high-cost mortgages — a gap of 6.2 percentage points. They were:

• Minneapolis had 3.2% high-cost mortgages overall, and 9.3% among Blacks — a 6.1-point gap.
• Riverside, Calif., had 8.7% high-cost mortgages overall, and 14.3% among Blacks — a 5.6-point gap.
• Raleigh, N.C., had 3.4% high-cost mortgages overall, and 8.7% among Blacks — a 5.3-point gap.
• Portland, Ore., had 3.8% high-cost mortgages overall, and 8.8% among Blacks — a 5-point gap.
• Boston had 2.5% high-cost mortgages overall, and 6.9% among Blacks — a 4.4-point gap.
• Buffalo, N.Y., had 4.7% high-cost mortgages overall, and 8.9% among Blacks — a 4.2-point gap.
• Salt Lake City had 7.7% high-cost mortgages overall, and 11.3% among Blacks — a 3.6-point gap.
• San Jose, Calif., had 1.9% high-cost mortgages overall, and 4.5% among Blacks — a 2.6-point gap.
• San Diego had 2.8% high-cost mortgages overall, and 4.4% among Blacks — a 1.6-point gap.
• San Antonio had 9.9% high-cost mortgages overall, and 10.5% among Blacks — a 0.5-point gap.