• Residential Real Estate
  • Racial disparity in mortgages persists, Northwestern study finds

    While egregious forms of discrimination in the housing market have declined since the late 20th century, the racial gap on access to mortgages and their overall costs has barely changed in three decades.



    While discrimination in the housing market has declined sharply in the past four decades, one area where a wide gap between the races perpetually hangs open is in mortgage lending, according to a new study by Northwestern University researchers.
    It’s long been known that black homebuyers in particular more often see their mortgage applications denied and pay higher loan costs than white buyers. The surprise, said the study’s lead author, Lincoln Quillian, is that “the disparity has gone down only a little bit” in three decades.
    The result is that while black households experience less steering into black neighborhoods and other overt discrimination than they did in the 20th century, “there are still significant obstacles to black homeownership, which is pretty depressing,” Quillian said.
    Some factors in the disparity “aren’t direct discrimination” like blatantly rejecting to do business with blacks, Quillian said, “but indirect discrimination.”
    Among them are African Americans’ shorter history with and access to household wealth that leads to lower credit scores. What's more, Quillian said, “if minority homebuyers are living in neighborhoods where there are a lot of advertisements from mortgage originators who are selling higher-cost products than are advertised in white neighborhoods, they turn to those originators more often.”
    Quillian, a professor of sociology and fellow of Northwestern’s Institute for Policy Research, estimated that “black households are paying on average 5 percent to 10 percent more in monthly mortgage payment than white borrowers due to higher-cost products, after controlling for borrower characteristics.”
    Quillian and his co-authors, John J. Lee and Brandon Honoré, examined data and reports on home mortgages between the mid-1980s and 2016, and for the housing industry—both rental and homeownership—from 1976 to 2016. In early January they published their results .
    It boils down to “a decline in the most in-your-face forms of discrimination like having a landlord just walk out when a black (potential renter) comes in,” Quillian said, but a long-lingering gap in the cost of and access to homeownership.
    “That’s accurate,” said Courtney Jones, president of the Dearborn Realtist Board, a statewide black real estate association. Jones is also a broker with Chicago Homes Real Estate. “Mortgage turndowns and the cost of a mortgage are still a big deal for black families,” Jones said.
    For homebuyers taking out a $285,000 mortgage, the difference between a FICO score of 677 and 734 can result in a $163 difference in the monthly payment, which adds up to more than $58,600 in the 30-year life of the loan, according to an August report from the National Association of Real Estate Brokers, a black industry group. Dearborn Realtists is the Illinois affiliate.
    In Chicago, according to the SHIBA report, nearly 34 percent of blacks’ mortgage applications are denied, compared to 15 percent of whites’, according to the SHIBA report.
    Given these influences, Quillian said, it’s not surprising that African American homeownership, which grew for decades following the 1968 passage of the federal Fair Housing Act, has, since the housing crash of the early 2000s, “not even recovered to the level of 1968.”

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