Fair housing still a challenge to U.S. minorities

Stat house
November 2004

Fair housing still a challenge to U.S. minorities
Homeownership is the major source of wealth for minority- and lower-income families and is the cornerstone of stable communities. However, many lower income and minority families are still shut out of the homebuying market as serious racial and economic disparities persist, according to "The Great Divide," a new study conducted by ACORN, the Association of Community Organizations for Reform Now.

A major factor contributing to the home ownership gap is that minority and lower income families experience continuing, and in many cases growing, inequalities in obtaining the financing necessary to purchase a home, according to ACORN's analysis. In addition, the prevalence in lower income and minority communities of subprime lending with its inflated prices and attendant predatory abuses means that an increasing number of homeowners are paying more for credit and are at a greater risk of losing their homes.

Using data made available under the Home Mortgage Disclosure Act (HMDA), ACORN analyzed home purchase loans originated in 2003 and also compared this data to that from the previous year (2002), five years earlier (1993) and ten years earlier (1993). The report looks in detail at the denial rates, number of originations and number of applications for borrowers of different races, ethnicities, and incomes, as well as for borrowers who live in neighborhoods of different racial and economic demographics.

The most significant findings are that:

The disparity between minority and white denial rates fell from 1993 to 1998 but by 2003 had returned to 1993 levels.

• African-Americans were 2.2 times more likely than whites to be denied when applying for a conventional loan in 2003, the same as in 1993 and an increase from 1998 when African-Americans were 1.8 times more likely than whites to be denied.

• Latino applicants were 1.6 times more likely than whites to be denied in 2003, an increase from 1998 when Latinos were 1.4 times more likely to be denied and just a slight decrease from 1993 when Latinos were 1.7 times more likely to be denied.

Although minority homebuyers saw a dramatically larger percentage increase than whites in the number of conventional loans they received from 1993 to 2003, a significant portion of the increase in loans to minorities was due to higher cost subprime loans.

• The number of conventional home purchase loans originated to Latinos grew 347 percent from 1993 to 2003, while rising 206 percent for African-Americans and 64 percent for whites.

• However, more expensive subprime loans accounted for 23.3 percent of the conventional loans made to Latinos, 25.4 percent of the loans to African-Americans, and just 8.2 percent of those to whites.

Low and moderate-income neighborhoods continue to be underserved by conventional lenders despite some progress in this area.

• Low and moderate income census tracts account for 31.3 percent of the country but received just 15.3 percent of the conventional loans in 2003. In contrast, upper-income neighborhoods make up 25.6 percent of the country and received 39.7 percent of the conventional home purchase loans.

• Low- and moderate-income communities are receiving a greater portion of the conventional home purchase loans being originated compared to 1993 when they received 9.9 percent of the loans originated and compared to 1998 when they received 10.9 percent of the loans originated.

Government-backed loans (FHA, VA, and FSA/RHS) continue to account for a far greater portion of the purchase loans to minorities than of those to white borrowers.

• Government-backed loans accounted for 25.7 percent of home purchase loans received by African-Americans in 2003 and 21.0 percent of those received by Latinos, as compared to 12.9 percent of the loans to whites.

• While these percentages represent a decrease from previous years for minority homebuyers, much of the increase in conventional loans to minorities is due to the rapid growth of subprime lending.

ACORN's Report recommendations include a call to strengthen, rather than continue to dilute, the Community Reinvestment Act, increased funding for homeownership counseling and fair housing agencies, actions against predatory lending and property flipping, and the need for lenders to work with community organizations to develop programs to improve programs for underserved lower-income and minority communities.

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