Mortgage applications from Black homebuyers in metro Detroit were more likely to be denied, with nearly 40% of Black applicants facing rejection, compared with 18% of white homebuyers.
That’s according to a report released last week looking at the barriers to homeownership and wealth building in Detroit. The analysis is part of a broader project in 10 American cities. Researchers from the Urban Institute, a Washington, D.C.-based nonprofit research organization, honed in on Detroit’s homeownership trends before the COVID-19 pandemic, and the majority-Black city’s recovery from the Great Recession.
“The Detroit market report echoes the national story — lack of affordable housing nationwide, decades of disinvestment, lower household incomes, lack of new homes and exclusionary housing practices have all built barriers to homeownership everywhere, but particularly in Detroit,” said Laurie Benner, associate vice president of programs for the National Fair Housing Alliance, which commissioned the report.
The report identified stark racial disparities in homeownership in the Detroit metropolitan statistical area, which includes Detroit, Warren and Dearborn. Access to credit and traditional financial institutions and down payment assistance, researchers said, can help address the homeownership gap.
The data comes from the American Community Survey and the 2019 Home Mortgage Disclosure Act, among other sources.
Here are some of the key takeaways:
- Mortgage applications from Black and Hispanic homebuyers were more likely to be turned down, according to an Urban Institute analysis of 2019 Home Mortgage Disclosure Act data. A little more than half of Black and Hispanic mortgage applicants in Detroit were rejected, compared with 22% for white homebuyers. In metro Detroit, the denial rate was 39% for Black applicants, 31% for Hispanic homebuyers and 18% for white buyers.
- Forty-five percent of borrowers who applied to buy homes in Detroit were denied a mortgage, compared with 24% in metro Detroit and 21% nationally.
- In Detroit, 90% of households live in homes built before 1980, compared with 68% in metro Detroit and 51% in the U.S. In Detroit and metro Detroit, a greater share of Black households live in homes built before 1960. Older homes may require upkeep and extensive repairs.
- The median household income in Detroit was about half of that of metro Detroit. In both areas, Black households had the lowest median household income among all racial categories measured.
- Homeownership rates for all racial and ethnic groups — except Hispanic households — fell continuously in Detroit since 2005. Black homeownership was lower in metro Detroit, 42%, than in the city, 45%, indicating “that Black households are struggling to become homeowners at both geographic levels,” researchers wrote. This compares with a homeownership rate of 78% for white metro Detroiters and 53% for white Detroiters.
- More than a quarter of Detroit homeowners were “housing cost burdened,” meaning they spend 30% or more of their income each month on mortgage payments, insurance, property taxes and utility payments. The share of housing cost-burdened households has dropped since 2005. There are more renters who are housing cost-burdened in Detroit, compared with the region and the U.S.
The three most common reasons for mortgage rejection were an applicant’s credit history, debt-to-income ratio and collateral, researchers note. A little more than half of Black households in Detroit and 46% in the metro area said credit history was the reason behind their denial, according to 2019 Home Mortgage Disclosure Act data.
“Overwhelmingly, Black and brown communities have a dearth of banks and an excess of payday lenders and check cashing establishments that tend to charge exorbitant interest rates and have onerous repayment terms, so access to credit and access to mainstream financial products is a big part of that solution,” Benner said.
Lenders in 2019 were more likely to reject home loans to people of color than white buyers with similar financial characteristics, according to an August investigation from the nonprofit news organization The Markup. Nationally, lenders were 80% more likely to deny Black applicants compared with similar white applicants.
“There’s an inherent discrimination involved in the lending system,” Benner said. “There’s algorithmic biases in the computer-generated lending models and it really goes back even further than that, it goes back to decades of exclusionary policies and laws.”
The lack of lending in Detroit is a “major problem,” Steve Tomkowiak, executive director of the Fair Housing Center of Metropolitan Detroit, said. Last fall, the Wall Street Journal reported that less than a quarter of Detroit homes were financed by mortgage loans in 2019 — the smallest share in the nation’s 50 biggest cities.
Boosting homeownership in Detroit must be paired with higher incomes, said Anika Goss, CEO of the think thank Detroit Future City.
“Detroiters need to be making more money, we need to be paying a higher wage, we need to reduce the cost burden. We have to have fewer Detroiters — whether it’s homeownership or renters — that are cost-burdened so that we can increase the number of concentrated neighborhoods where there is homeownership,” she said.
Small dollar loans and down payment assistance programs can open up pathways to homeownership in Detroit, said Jung Choi, a senior research associate at the Urban Institute and one of the report’s authors.
“Over the long run we see that in most of the markets in the U.S., if you are a homeowner, you’re likely to have greater wealth-building opportunities,” she said.
Nushrat Rahman covers issues related to economic mobility for the Detroit Free Press and BridgeDetroit as a corps member with Report for America, an initiative of The GroundTruth Project. Make a tax-deductible contribution to support her work at bit.ly/freepRFA.