‘The bedrock of wealth inequality’: Data shows big racial disparities in mortgage loans and homeownership

Spring Cambric knows what she will be thankful for this Thanksgiving: the home she is buying with help from Richmond Metropolitan Habitat for Humanity. The single mother of four plans to move into her two-story, iron-gray house in Northside Richmond this fall.

“I love it because it will be ours — something that my children can know that we put in hard work to have,” said Cambric, who enlisted in the Navy at 16, spent more than 18 years in the military and now works as a human resources assistant at Fort Lee.

Homeownership did not come easy. Cambric, 44, had applied for mortgage loans twice before and been rejected. “They told me my credit score wasn’t high enough,” said the former petty officer, who acknowledged facing financial difficulties after getting divorced.

Her past experience with mortgage companies was hardly unusual. Nationwide and in Virginia, African Americans like Cambric were more than twice as likely as non-Hispanic Whites to be denied loans to buy homes in 2019, according to new federal data.

Of the approximately 14,700 mortgage loan applications submitted by Black Virginians last year, 11.9 percent were turned down, the data showed. In contrast, of the roughly 70,400 applications from non-Hispanic Whites, 5 percent were rejected. (The denial rates were 9.6 percent for Hispanics and 8.5 percent for applicants of Asian descent.)

Racial disparities existed even among applicants with similar income levels, according to data collected under the Home Mortgage Disclosure Act. For example, among applicants with annual incomes of about $125,000, the denial rates were 8.4 percent for Black Virginians and 3.6 percent for non-Hispanic Whites.

Disparities in who gets mortgage loans are not new; they have been evident since the Federal Financial Institutions Examination Council began compiling HMDA statistics in the 1980s. But the 2019 data, released June 24, comes amid a national conversation about racial inequalities and institutional racism.

In light of the protests triggered by the death of George Floyd under the knee of a Minneapolis police officer, the latest HMDA numbers take on added meaning because “homeownership is probably the most powerful way to rectify the racial wealth gap,” said Alex Guzmán, director of fair housing for the nonprofit group Housing Opportunities Made Equal of Virginia.

Bruce Whitehurst, president of the Virginia Bankers Association, said the #GeorgeFloyd movement has put a focus “on systemic racism relative to the Black community especially, and the need to address and overcome the structural issues that remain to this day.”

The persistent racial disparities in home loans reflect the lack of opportunities for many African Americans, he said. 

“Particularly speaking for myself as a non-Hispanic White, we have to think a lot more about why the differences are there,” Whitehurst said. “I just think we’re at this place where we need to address the structural issues. And I think it’s fair for anyone in the Black community to say, ‘What took you so long to figure out what we’ve known for a long time?'”

Homeownership’s role in building wealth

Experts generally agree that in most cases, homeownership is a tremendous financial boost.

“It makes a world of difference in being able to help not only move up the ladder economically but to help the next generation for transfer of wealth,” said Greta Harris, president of the Better Housing Coalition, a nonprofit that provides affordable housing in the Richmond area.

She described the excitement of “handing the keys over to a first-time homebuyer — the first one in their family to ever own a home — and you have 30 people showing up when they walk into their own home because everybody’s so proud of the accomplishment: being able to own a little piece of the rock here in America.”

Mary Kay Huss, CEO of Richmond Metropolitan Habitat for Humanity, called homeownership “a solution to breaking a cycle of poverty.” When people buy a home, they begin building equity that they can use to send their children to college — setting the stage for their offspring to become homeowners.

“It changes the trajectory of that family,” Huss said.

Donnell Williams, president of the National Association of Real Estate Brokers, said renting “makes someone else rich” but having a home that increases in value makes its owner wealthier. That’s especially true with mortgage interest rates at record lows.

“A house is a live-in bank account,” said Williams, whose group was formed in 1947 to fight racial segregation and help African Americans in particular become homeowners.

Because homeownership is central to creating wealth, the racial disparities in homeownership represent “the bedrock of wealth inequality in America and in Richmond,” said Heather Mullins Crislip, president of HOME, which provides classes and counseling for prospective homebuyers.

She said African Americans:

• Are far less likely than Whites to ever own a home.
• Buy their first home on average nine years later in life than Whites (and thus enjoy less appreciation in value).
• Are more likely to buy a home in a racially segregated area that won’t appreciate as much.
• Often pay more interest or other costs for their home loan.

“All of those things add up over the course of a person’s lifetime and give us this massive wealth inequality,” Crislip said.

How unequal? The U.S. Census Bureau reported last year that non-Hispanic White households had a median wealth of more than $139,000. That compared with less than $13,000 for Black households and $20,000 for Hispanic households.

A key factor, the report said, is that most non-Hispanic White households owned their homes.

Black homeownership has been falling in Virginia

In 1968, when Congress passed the Fair Housing Act to outlaw racial discrimination in the real estate industry, about 52 percent of African American families in Virginia owned their homes. The figure is now 48 percent — compared with 73 percent of non-Hispanic White households, according to the latest Census Bureau data.

In many geographic areas, the difference is much bigger than the statewide numbers. For example:

• In the Harrisonburg metro area, 66 percent of non-Hispanic Whites compared to just 14 percent of Blacks own their homes. 
• In the Staunton-Waynesboro area, 73 percent of non-Hispanic Whites and 28 percent of Blacks own their homes. 
• In the Blacksburg-Christiansburg-Radford area, 68 percent of non-Hispanic Whites and 29 percent of Blacks own their homes.

Several localities in Northern Virginia also had large disparities. For instance, in Alexandria, 55 percent of non-Hispanic Whites but 18 percent of Blacks own their homes.

Nationwide, 72 percent of non-Hispanic White households and 41 percent of Black households own their homes.

“The steady decline in Black homeownership has translated into a steadily growing gap in net worth between Blacks and non-Hispanic Whites,” according to a report issued last fall by the National Association of Real Estate Brokers.

History of racial bias in housing

Racial discrimination in housing can be traced to slavery — and, after the Civil War, the U.S. government’s reneging on its promise to give each freed slave 40 acres of land.

During the Great Depression, the government officially sanctioned racist home lending practices by refusing to guarantee loans in Black neighborhoods. The Federal Housing Administration, created in 1934, gave preference to Whites and discouraged loans to racially mixed and predominantly African American areas. 

“Until the 1960s, the FHA practices insured the financing of homes by Whites in the rapidly growing suburbs in lieu of insuring loans in the urban markets in which minorities lived,” according to Mortgage Lending in the City of Richmond: An Analysis of the City’s Lending Patterns, a 2015 study by HOME.

“By denying access to FHA-insured loans, Blacks were excluded both from the benefits of homeownership in the rapidly growing, predominantly White suburbs as well as in inner city neighborhoods which, due to the inability to access credit, began to deteriorate.”

Predominantly Black communities continue to suffer from the legacy of redlining, said Harris, who has served as CEO of the Better Housing Coalition for seven years. “Those same neighborhoods for the most part are still struggling today,” she said.

Besides discriminatory real estate practices, Harris said highway construction, public housing and so-called “urban renewal” policies all targeted communities of color like Jackson Ward, Carver and Navy Hill in Richmond.

“It’s not one thing,” she said. “It’s a cumulative action of a lot of things that have happened, just like a water-torture drip over a long period of time that has created the disparity that we’re all dealing with right now.”

The Fair Housing Act, Community Reinvestment Act, Home Mortgage Disclosure Act and other laws sought to address racial discrimination. But progress has been slow.

In 1989, Bill Dedman of The Atlanta Journal-Constitution won a Pulitzer Prize for his analysis of HMDA data showing that “Blacks are rejected more than twice as often as whites when they apply for home loans at America’s savings and loans.”

Last year, the gap was even wider.

HMDA data shows racial disparities throughout Virginia

Statewide in 2019, Black applicants were 2.4 times more likely than non-Hispanic White applicants to be denied a loan (11.9 percent vs. 5 percent), according to the data analysis by Virginia Mercury, which focused on first-lien mortgages for owner-occupied, site-built homes.

In the Blacksburg-Christiansburg-Radford, Richmond and Charlottesville metro areas, African Americans were about three times more likely than non-Hispanic Whites to be turned down for a loan.

The gap was striking in many localities. In Halifax County, for example, the denial rate was 27 percent for Blacks and 4 percent for non-Hispanic Whites.  

The denial rates for Black Virginians were well above the denial rates for non-Hispanic Whites regardless of income level. Among applicants making about $65,000 a year, the denial rates were 11 percent for African Americans and 3.6 percent for non-Hispanic Whites. For applicants making about $115,000, the gap was 8.9 percent vs. 3.4 percent; and for applicants making about $185,000, it was 7.4 percent vs. 2.3 percent.

Denial rates fluctuate from year to year based on mortgage interest rates, the economy and other factors. But the racial disparity has been consistent: In 2018 in Virginia, the home loan denial rate was 14 percent for African Americans and 6.2 percent for non-Hispanic Whites. In 2007, when credit was especially tight, the denial rate was 23 percent for Black Virginians and 9.1 percent for non-Hispanic Whites.

Some lenders buck the trend. For instance, Village Bank Mortgage Corp. in Midlothian had denial rates of 1 percent for both Black and non-Hispanic White applicants in Virginia last year. 

But the vast majority of lenders rejected Black applicants far more often than non-Hispanic White applicants. For example, loanDepot, a California-based mortgage lender with an office in Glen Allen, turned down 18 percent of African Americans seeking home-purchase loans and 4 percent of non-Hispanic Whites.

Why lenders denied loans to Black applicants 

According to HMDA data, when denying loans, lenders said African American applicants were far more likely than Whites to have problems with their credit history and debt-to-income ratio.

More than 4 percent of Black applicants in Virginia last year were rejected because lenders determined that their mortgage and other debts would consume too much of their monthly income. Of non-Hispanic White applicants, 1.4 percent were rejected for that reason. (Under federal standards, an applicant’s debts must not exceed 43 percent of the person’s monthly income.)

In addition, 3.6 percent of African Americans but just 1 percent of non-Hispanic Whites were denied loans because of their credit history.

Whitehurst, the CEO of the Virginia Bankers Association since 2007, said racial factors underlie those numbers.

“What leads to a poor credit history, what leads to a high debt-to-income ratio, aren’t as simple as the applicant didn’t pay their bills on time or the applicant was trying to borrow more money than his or her income would support. It’s really a much more layered, complicated representation of the disadvantages Black Americans have faced for a very long time,” he said.

“If you are in a place where there hasn’t been as much opportunity in your background and your family’s background, then it’s going to be measurably easier to come into credit history problems.”

Crislip’s organization, HOME, works with prospective homebuyers to help improve their credit record. She said the methods that credit-rating agencies use to compute a person’s credit score “are not unbiased.”

“It is a little bit of a black box,” she said.

African Americans may have lower credit scores even though they have reliably paid their bills on time, she said. Crislip said predominantly Black neighborhoods are less likely to have bank branches — so residents are more likely to go to a payday loan store or other subprime lender.

“If you have taken out a car title loan or a payday loan and you’ve made every payment — you’ve fulfilled every bit of your obligation on that loan — just the fact that you accessed credit through a subprime outlet is a ding on your credit,” Crislip said. 

Bruce McClary, vice president for communications of the nonprofit National Foundation for Credit Counseling, was once a credit counselor in the Richmond area. He recalled African American clients who were good credit risks — and yet when they needed to borrow money, “their first stop was a subprime lender.” 

When asked why, the clients said it was because they knew the lender and “that’s where my parents always went,” McClary said.

As a result, he added, “A disproportionate amount of subprime debt is carried by Black consumers and other minority consumers.” Such loans typically carry high interest rates and ballooning payments.

“People struggle to pay them back, and they get caught up in a cycle of debt,” McClary said.

Harris said the racial disparities in mortgage loans and homeownership reflect a range of “systems-related challenges,” such as a lack of living-wage jobs. That is why the Better Housing Coalition plans to team up with J. Sargeant Reynolds Community College to train people for well-paying employment in health care, information technology and other fields.

“There are lots of complex and intertwined issues associated with racial discriminatory housing practices,” Harris said. For instance, she noted that African Americans are more likely to live in food deserts and polluted neighborhoods and that poor nutrition and health problems can cause medical bills that in turn can torpedo a person’s credit rating.

Academic research has found that credit scores and borrowers’ financial characteristics cannot account for all of the racial disparities in loan denial rates, said Ben Teresa, co-director of the RVA Eviction Lab at Virginia Commonwealth University.

“Other structural factors at work here systemically deny credit to Black borrowers, such as neighborhood segregation, or that steer them into high-cost loan products, as was the case during the subprime housing boom of the early 2000s,” said Teresa, an assistant professor at VCU’s L. Douglas Wilder School of Government and Public Affairs.

He defined “structural factors” as “those elements that are not reducible to interpersonal racism and discrimination.” For example, Teresa said, banks consider predominantly Black neighborhoods as “riskier” and may be reluctant to approve loans there. 

“It becomes a bit of a self-fulfilling prophecy,” he said, because if people can’t buy and improve their homes, property values will decline and the neighborhood will indeed be a riskier place for investment.

Strategies to boost Black homeownership

Experts advocate both macro and micro ways to bridge the racial gap in homeownership.

Macro strategies address the systemic disadvantages African Americans face. Harris cited drug laws that have disproportionately sent Black people to prison for using crack cocaine but White people to treatment for using opioids. “Having a felony impacts your ability to find work” and thus income and homeownership prospects, she said.

Williams, who heads an organization consisting largely of Black real estate agents, wants Congress to create a program aimed at increasing African American homeownership — as it has done for Native Americans. The program would help qualified Black homebuyers with their down payments and guarantee their loans.

A real estate broker in New Jersey, Williams also advocates strategies aimed at potential homebuyers. They should prioritize saving money and setting financial goals, he said.

As president of the National Association of Real Estate Brokers, Williams launched a campaign titled “The House Then the Car.” The message, targeted especially to Black millennials, urged them to buy a home before purchasing an expensive automobile.

“I guarantee you — if you buy the house, it will buy the car for you,” Williams said.

Other micro strategies urge potential homebuyers to monitor their credit reports, minimize debts, pay bills on time and enroll in courses or seek counseling on how to buy a house.

“Part of it is education because if no one in your family has bought a home, you just don’t know what the process is,” Harris said.

In addition, Whitehurst hopes government regulators will relax the current rule on debt-to-income ratio. And Williams wants lenders to be more flexible with credit scores of loan applicants.

“I’m not sure anybody has found the absolute solution yet,” said Susan Dewey, executive director of Virginia Housing, formerly the Virginia Housing Development Authority, which was created by the General Assembly in 1972 to help first-time homebuyers.

Dewey said her organization is focused on “how we can help close that gap in minority homeownership.” Virginia Housing provides prospective homebuyers with free education courses, credit counseling and down payment grants. 

Over the past year, Virginia Housing guaranteed loans totaling $1.8 billion for about 8,500 homebuyers across the state. Of those homebuyers, 47 percent were people of color — including 28 percent African Americans. 

By comparison, according to HMDA data, about 31 percent of all homebuyers in Virginia last year were people of color, and 13 percent were Black. Of all Virginia residents, 39 percent are people of color, including 20 percent African Americans.

Nonprofits also offer help, including:

• HOME, which provided down payment assistance to more than 100 homebuyers last year.
• The Better Housing Coalition, which has built or renovated more than 200 houses and sold them to first-time homebuyers in the Richmond area.
• Richmond Metropolitan Habitat for Humanity, which has helped more than 350 low-income families buy homes after taking classes and putting in 350 hours of “sweat equity.” 

‘I knew I wanted to be a homeowner one day’

Such assistance is available to people regardless of race or ethnicity, of course. 

In February, Debbie Owens, 52, bought a mobile home in rural Dickenson County, in southwest Virginia, with help from Virginia Housing.

“The VHDA program has been amazing,” said Owens, who is White and works as a receptionist at a doctor’s office. She lives in the three-bedroom, two-bath home — “white with red shutters” — with her special-needs son, Zachary, 31.

Owens’ husband, Scott, was a musician and singer. He died in 2018.

The family had always lived in rental housing. “I didn’t have $10,000 to put down on a home,” Debbie Owens said. But Virginia Housing helped her with the upfront costs.

“On the closing date, the only thing that I had to pay was 93 cents,” she said. “That was my closing costs out of my pocket.”

Down payment assistance can especially help homebuyers who are Black — like Donetta Williams, who bought a three-bedroom rancher in rural King William County in March thanks to Virginia Housing.

Williams, 48, has worked at the Purina kitty litter factory in King William for five years. She grew up in public housing in Richmond, graduated from high school, took trade-school courses and worked two jobs most of her life.

“I knew I wanted to be a homeowner one day. I knew eventually I would get out of the projects and be a homeowner,” said Williams, whose father died when she was 13. She credited her mother, grandparents and other family members for teaching her important values such as saving money, paying bills on time and “surrounding myself with positive people.”

Williams said she has always avoided credit card debt and differentiated between “what is a need and what is a want. ‘I need this; I don’t have to have that.’ That’s the way I try to live my life.”

Spring Cambric said she learned such lessons by taking monthly classes from Richmond Metropolitan Habitat for Humanity. “As long as I’ve been alive, I’ve never actually learned how to budget my money, how to have a nest egg,” she said. 

The Habitat classes helped her realize how much she was spending on pizza and other fast food for her children. Now, Cambric said, “I’m saving money to put toward the house.”

She has spent two years taking homeownership preparation classes and working on Habitat construction projects.

“It was demo work. You’re ripping up floors, knocking the walls out,” said Cambric, who donned a hard hat and wielded a sledgehammer for the daylong volunteer activities.

Cambric currently pays $850 a month in rent for a “real run-down house” in Highland Springs, east of Richmond. She said the monthly mortgage on her Northside home will be around $700.

“I wish I had found this program a long time ago,” Cambric said. “This home is a blessing. And if I did not have the love from the volunteers, my family and Habitat, I would not have this home.”