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The Fight to Close the Mortgage Lending Gap

Buying a home, while exciting, can also be an overwhelming experience since there is so much to consider. For those from underserved or underrepresented communities, buying a home can be especially difficult due to mortgage loan discrimination. According to a report from LendingTree, Black Americans are more than twice as likely to be rejected for a mortgage loan than white Americans.

This type of discrimination has consequences that extend beyond preventing individuals from underrepresented communities from buying a house. Ultimately, the inequitable denial of mortgage loans for different races perpetuates existing inequities, as homeownership can be an essential step to building lasting generational wealth.

Current State of Homeownership in the U.S.

Like with other areas of the economy, the U.S. homeownership rate fluctuates. According to a report released in 2022 from the National Association of Realtors (NAR), 2020 was a great year for the housing market, as the homeownership rate increased 1.3% to 65.5% from the previous year.

More specifically, white Americans had a rate of 72.1%, Asian Americans reached 61.7% and Latinx climbed above 50% for the first time at 51.1%. All of these rates were the highest they had been in a decade. While the homeownership rate of Black Americans reached 43.3%, they are the only racial group mentioned in the report that did not achieve a decade-long, record-breaking increase.

Racial Discrimination in Mortgage Lending

Although Title VIII of the Civil Rights Act of 1968, also known as the Fair Housing Act, outlawed discriminatory practices in the housing market, they still persist today. Mortgage lending continues to be a barrier that is affecting homeownership for Black Americans and is a substantial component of these discriminatory practices. 2021 data from the Home Mortgage Disclosure Act (HMDA) shows that Black Americans had the highest denial rate of mortgage applications at 15.3%, compared to 6.3% for white Americans. Additionally, studies have shown that even if Black Americans are approved for a mortgage loan, they are typically charged higher interest rates.

The data that mortgage lenders attribute to the racial denial gap, which contributes to the Black homeownership gap, is not available to the public. However, researchers at the Federal Reserve found that different elements, including credit scores, income and mortgage loan algorithms, help to explain only a part of the racial gap in mortgage loan denials.

Robert F. Smith’s Work to Achieve Racial Parity

To help alleviate racial inequities in mortgage loan lending, individuals, communities and philanthropists can take steps to achieve progress. Robert F. Smith, the Founder, Chairman and CEO of Vista Equity Partners, is passionate about supporting initiatives and organizations that promote racial equity. While he partners with many organizations, he is particularly passionate about Southern Communities Initiative. The Initiative is a consortium of organizations that have a collective goal to advance racial parity through their support of six Southern U.S. communities where the majority of Black Americans reside.

A critical facet of the Initiative’s work is to expand access to capital for Black Americans through community development financial institutions (CDFIs) and minority depository institutions (MDIs), which can be used for mortgage lending and homeownership. Southern Communities Initiative can help make this a reality by investing critical funds in banks to provide them with the tools they need to serve their communities.

Learn more about Southern Communities Initiative.