Mortgage obstacles for Blacks, Latinos create ‘stark’ homeownership gap, AG report says

A state report issued Tuesday finds a “stark gap” in homeownership by Blacks and Latinos compared with whites statewide — and blames government and lenders for creating obstacles to mortgages.

State Attorney General Letitia James, whose office compiled the report, said whites own their homes at nearly double the rate of households headed by Blacks and Latinos. The report, “Racial Disparities in Homeownership,” concludes that mortgage lending practices have “prevented New Yorkers of color from purchasing homes and deepened wealth inequality.”

“These disparities are a significant contributor to the racial wealth gap and result in higher housing costs for homebuyers of color, making it harder for communities of color to build lasting financial security and overcome decades of systemic discrimination in the housing market,” James said.

Statewide, across all income and credit score ranges, Blacks and Latinos are denied mortgages at higher rates than whites, are charged higher interest rates and are less likely to be approved to refinance mortgages to a lower interest rate, the report concluded. It also found that Black and Latino mortgage applicants also are more likely to use Federal Housing Administration loans common for buyers who can’t secure a large enough down payment, but which include more fees.  

“Even among borrowers with the highest credit scores, nonwhite mortgage applicants are denied a mortgage at nearly double the rate of white applicants,” the report said. “This economic punishment starves communities of resources and deprives borrowers of color of the power to amass wealth.”

There are parallels between the report and findings in Newsday’s “Long Island Divided” series.

In 2019, Newsday found evidence of widespread separate and unequal treatment of minority potential homebuyers and minority communities on Long Island. The three-year probe strongly indicated that house hunting in one of the nation’s most segregated suburbs poses substantial risks of discrimination, with black buyers chancing disadvantages almost half the time they enlist brokers. Additionally, the investigation revealed that Long Island’s dominant residential brokering firms helped solidify racial separations.

Taken together, the Newsday series and the attorney general’s report show Black and Latino would-be homeowners face barriers to homeownership ranging from shopping for a home to landing a mortgage.

The attorney general’s statewide report released Tuesday also singled out concerns on Long Island.

“Long Island shows a clear lack of applications [for mortgages] from neighborhoods of color at the western ends of both Nassau County and Suffolk County,” the report states. Black and Latino applicants on Long Island also were 37% more likely to be denied a loan than white applicants, the report said, although that rate was lower than the statewide rate of 49%. In addition, Black and Latino homeowners on Long Island were 20% more likely to be denied refinancing to a lower interest rate, the report stated. The statewide average was 24%.

The state Attorney General’s Office used several sources to draw its conclusions. The methodology included analysis of U.S. Census data for homeownership rates and neighborhood demographics; federal data collected under the Home Mortgage Disclosure Act that includes credit scores from lenders; data from the Department of Housing and Urban Development; and Federal Deposit Insurance Corp. data for the location of bank branches, and decisions made in those branches. Every step of the home-loan process was examined for disparities by analyzing mortgages sought, approved and rejected using the various agencies and databases, the office said.

The report also cites problems statewide.

“At each stage of the homeownership process, Black and Latino borrowers are disproportionately taxed,” the report stated. “All borrowers of color pay higher costs and fees than white borrowers. Black and Latino borrowers hold loans with higher interest rates than do white and Asian borrowers.”

Despite laws prohibiting discrimination and segregation, the report found race-based disparities. One example: The value of a typical home in Rochester paid for through financing in 2021 was $114,000 in a neighborhood of mostly Black and Latino residents, compared with $231,00 in a majority white neighborhood in the city.

In other examples, Black and Latino applicants were:

• 151% more likely to be denied a mortgage in the Buffalo area.
• 72% more likely to be denied in Dutchess and Putnam counties and in Rochester.
• 66% more likely to be denied in the city of Albany.
• 59% more likely to be denied in Syracuse.

Government policy also has played a role, the report said.

“Neighborhoods of color, particularly Black and Latino neighborhoods, have been historically segregated by racist housing policies and bifurcated by physical infrastructure, such as highways,” it said. “Federal government programs to support homeownership and wealth-building benefited white families, who have tended to congregate in suburban locales, rather than Black and Latino families, who have tended to live in urban centers.”

The FHA program also was criticized. The FHA helps prospective lower-income buyers secure a mortgage when they can’t meet banks’ minimum down payment, but users must pay a fee.

The report found that some “lenders may actually steer borrowers of color into FHA loans … many factors contribute to the disproportionate use of FHA loans by Black and Latino borrowers. The net result is steeper costs for homeownership.”

“The problem may be particularly acute in New York City and Long Island, where home prices are higher and therefore more likely to require higher down payments,” the report stated. “In these regions, racial disparities in the use of FHA loans are the highest.”

Black and Latino homeowners also were disadvantaged when trying to refinance their mortgages to a lower rate provided by the market, the report found.

“In Syracuse, an application for refinancing in a neighborhood of color was 97% more likely to be rejected than an application from a majority-white neighborhood,” James’ report stated. Buffalo’s rate was 79% and Albany’s was 83%.

Among the report’s recommendations for state legislation are:

• A subsidy for down payments and lower interest rates for first-generation homebuyers of color.
• Increasing funding for nonprofit financial institutions to better support predominantly Black and brown communities.
• A New York Public Banking Act to allow cities, towns and regions to create “public banks” to provide affordable financing to underserved communities.
• Increase funding to crack down on unfair lending practices and strengthening the state human rights law to prohibit these practices.

James also wants the state to explore providing state banking services at libraries, post offices and other sites for communities that lack adequate access to traditional banks.

“New York has a responsibility to remedy the accumulated harms of discrimination,” the report concluded. “This will require bold action that lifts up communities that have been held back by a long history of discriminatory policies and practices.”