The Unequal Mortgage Market

Massive disparities persist in the housing market and the economy based on the color of one’s skin, explains Michela Zonta.

Part of a Series

idea light bulbPersistent racial and ethnic inequality in the mortgage market is not a coincidence. Nearly 50 years after the adoption of the Fair Housing Act, newly released federal data indicate that people of color continued to lose ground in the homeownership market in 2013. In particular, black and Hispanic households continued to represent a shrinking fraction of the mortgage market and received higher-cost loans compared with white borrowers. Tragically, many prospective black and Hispanic homeowners never reach the loan-decision stage of the home buying process. People of color are still being treated unequally in the home mortgage market, even when they demonstrate an ability to repay their loans.

Blacks and Hispanics are more than twice as likely to be denied a mortgage as non-Hispanic whites with comparable incomes and risk profiles. However, the disparate treatment received by people of color is not confined solely to the loan approval stage of the mortgage lending process and does not necessarily take the form of a loan denial. Discrimination based on race or ethnicity can take several forms during any stage of the process. During the pre-application stage, for example, lenders may discourage borrowers of color from continuing with the loan application process even though they may qualify for a loan. Lenders also may not provide the same information to applicants of color that they provide to white applicants. Further, pair testing studies—in which two individuals pose as equally qualified borrowers in every respect except their race or ethnicity and inquire about the availability and terms of home mortgage loans—demonstrate that people of color are consistently treated differently than equally qualified whites.

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