New analysis out of New York shows the extent historic homeownership gaps are affecting the state's Black and Latino population, who also face higher costs across the life of a mortgage compared to white consumers.
Disparities in homeownership between minorities and white populations exist across all regions of the Empire State, according to the attorney general's office in a report issued this week. In the mortgage origination process, notable racial differences similarly occurred, adversely affecting borrowers of color, who were denied purchase loans more frequently and will end up paying a combined $207 million more in fees, interest rates and other associated costs.
The trends perpetuate long-existing inequality, brought on through historical redlining and discrimination policies aimed at keeping Black and Latino households from achieving greater wealth, Attorney General Letitia James said.
"Owning a home is an essential part of achieving the American dream and building wealth to pass on to future generations," she said in a press release. "Unfortunately, unequal access to affordable credit is still pervasive across our state, reinforcing the legacy of segregation, leading to a disparity in homeownership, and fueling the racial wealth gap."
Between 2018 and 2021, Black purchase-loan applicants in New York were denied 23% of the time, while the Latino rate was 20%, the state's report said. By comparison, white applicants were turned down 14% of the time.
Loan denial rates still existed even when controls were introduced to account for variations in underwriting, such as credit score, income level, mortgage amounts and debt-to-income and loan-to-value ratios.
Even when adjusting for these factors and applying the same criteria across all loans, Black borrowers were still 43% more likely to be rejected compared to white consumers in 2021, while for Latino buyers, the rate was 33% higher. The probability of Asian applicants being denied was also 43% higher.
The disparity among Black and Latino applicants became more prevalent when their credit risk improved, with denials for scores of 740 and higher often at least double the rate than for white borrowers.
Across the state, white households were more than twice as likely to own their home compared to as Black or Latino households, and had a 25% higher probability than the Asian population.
"The Attorney General's report goes to the heart of racial disparities in mortgage lending that have caused decades of harm to New Yorker's Black and Latino communities and prevented wealth and asset accumulation to these individuals and their families," said Melissa Marquez, CEO of the Genesee Co-op Federal Credit Union.
The share of Black and Latino buyers was also lower than their total representation in the state. Black households taking out purchase loans accounted for only 7.6% of applications in 2021, despite making up 14.5% of residents. For Latinos, the applicant share was 9.5% compared to the 19.7% who live in the state.
White borrowers represented 60.5% of purchase applicants, higher than their 56.9% share of the population. The proportion of Asian and other- or mixed-race buyers also ran ahead of their share in the state's population.
The state's analysis of Home Mortgage Disclosure Act data also found Blacks and Latinos paying more in interest rates and fees compared to white and Asian counterparts between 2018 and 2021. Over the life of their loans, interest payments would be $170 million higher, while $37 million more would come from costs and fees.
A primary reason behind those disparities is the higher number of Federal Housing Administration-backed loans taken by minorities, which often come with higher interest rates and mandatory insurance, the attorney general said.
Borrowers of color also see fewer benefits than white households during the refinance boom of a few years ago when rates fell below 3%, with a 21% greater probability of seeing their applications denied. Approximately 16,000 fewer rate-and-term applications came from predominantly minority neighborhoods in the state during 2021, leading to an estimated annual collective loss of $44 million of savings for those communities.
New York's findings echo similar studies looking at Black and Latino homeownership trends nationwide over the past few years. The homeownership gap between Black and white households, larger today than it was in 1960, have led many stakeholders in the housing industry to introduce programs and alternative underwriting policies to attract more minority borrowers.
Since racial justice protests of 2020, the home lending industry has upped its outreach efforts to underserved borrowers, with increased promotion of affordability and down payment assistance tools. Several mortgage companies also introduced special-purpose credit programs in 2023 aimed at providing homeownership opportunities to communities of color. At the same time, lenders also agreed to settle redlining lawsuits, introducing racial equity initiatives and new loan programs.
But more work is needed to achieve greater wealth equality in New York State, the report said, including subsidies to reduce down payments and interest rates. The attorney general also encouraged the idea of creating new regulatory framework that would allow local jurisdictions to establish public banks and increased funding to nonprofit financial institutions that would support minority borrowers.
