Recent analysis reveals that mortgage applications from people of color are rejected at much higher rates compared to those from white applicants.

In 2023, 27.2% of Black applicants had their mortgage applications denied, which is more than double the 13.4% rate for white applicants. This figure is also 10 percentage points higher than the denial rates for borrowers of all races, based on the analysis of the Home Mortgage Disclosure Act conducted by the Urban Institute’s Housing Finance Policy Center.

The findings highlight significant inequalities in mortgage lending, which reflect broader trends in the housing market: in 2023, only 8.5% of all mortgage borrowers were Black. By 2024, the homeownership rate for Black individuals was 45.3%, a staggering 30 percentage points less than that of white families, which stood at 74.4%. For Latinx families, the homeownership rate was 48.5%.

Motivated by increasing denial rates alongside recent shifts in borrowing costs, Urban Institute researchers Michael Neal and Amalie Zinn examined the HMDA statistics, which are among the most thorough data sets made available to the public in the housing industry.

The chart above indicates that denial rates improved, leading to more mortgage approvals, in 2020 and 2021, before increasing again in 2022 when the Federal Reserve raised interest rates to curb inflation.

The research from Urban Institute reveals that the racial disparity also extends to refinancing: Black and Latinx homeowners face denial rates of 38.4% and 37.5%, respectively, compared to 21.8% for white homeowners.

This data underscores persistent inequalities in the housing market, Zinn noted. Borrowers of color often opt for mortgages with lower down payments, which in turn means they build up equity more slowly over time.

Cooling economy may affect vulnerable borrowers

Interest rates are likely to decline again: recently, the 30-year fixed-rate mortgage has averaged a full percentage point lower compared to this time last year, reflecting expectations of a potential interest rate cut by the Federal Reserve later this month. However, Neal warns that the current economic slowdown could intensify challenges for vulnerable borrowers.

“Considering where we are in the interest rate cycle and the overall economic situation, if individuals are already in a vulnerable position, those challenges will only increase,” Neal expressed.