Black, Latino mortgage rejection rates still high
More than two decades after a landmark study showed a pattern of lending discrimination against minorities, black and Latino borrowers in Massachusetts continue to be rejected for home mortgages at much higher rates than whites, according to a new analysis of loan records.
In his annual study on home-lending trends, Jim Campen, economics professor emeritus at the University of Massachusetts Boston, finds a persistent pattern of racial disparity in mortgage approvals in both greater Boston and across the state, even when minority borrowers have roughly the same income as whites.
Some 21 percent of black home buyers in Boston were rejected for a mortgage in 2014, compared with just 6 percent of white loan applicants, according to Campen's report.
Beyond Boston, the numbers aren't much better, with about 17 percent of black mortgage applications getting rejected, versus 6 to 7 percent for whites. Meanwhile, Latino borrowers were twice as likely to have their mortgage applications rejected compared with whites, according to the report.
Campen said many causes contribute to the racial lending disparities: racism, historically higher unemployment and lower incomes for minorities, thinner credit histories for minorities, and tougher lending standards following the 2008 financial crisis, among other reasons.
"It's a combination of a lot of things," Campen said. "It's very discouraging. It's all about the long legacy of historical discrimination."
Even when minorities make as much money as whites, the disparities remain. Among applicants with incomes between $71,000 and $90,000, blacks and Latinos were rejected at significantly higher rates than whites, according to Campen's analysis.
Lenders are required under the Home Mortgage Disclosure Act to file extensive information to the federal government about each application they receive, including loan terms, property information and location, gender and race of borrower, and whether the application was approved or rejected.
The Federal Reserve Bank of Boston identified a pattern of lending discrimination in the region as far back as 1992, and at the time, leaders of the banking community pledged to do more to eliminate such disparities.
Since then, Campen has been analyzing the mortgage data, issuing reports every year that he often titled "Changing Patterns." Yet his new analysis of home-purchase loans finds that the pattern has been persistently negative and has changed very little for minorities.
In Boston, black borrowers received 49 percent of total loans in Mattapan and 25 percent or more in Hyde Park and Roxbury. But mortgage loans to blacks were nonexistent in Allston, Beacon Hill, Downtown, the Fenway, Mission Hill, the North End, and the South Boston Waterfront, said the report.
In four of those neighborhoods, not a single minority applied for a mortgage in 2014, while Beacon Hill, the Fenway, and Mission Hill each received only one application each from a minority, Campen said.
And in 86 of the state's 351 cities and towns, there was not a single home-purchase loan to either a black or Latino in 2014, according to the report. Again, Campen said minorities either didn't bother applying for loans in those communities or didn't get or accept loans for whatever reasons.
Instead, mortgage loans to black applicants were highly concentrated in just five cities: Boston, Brockton, Randolph, Springfield, and Worcester. Latinos were similarly clustered in Boston, Lawrence, Lynn, Methuen, Revere, Springfield, and Worcester.
And minorities in those communities heavily relied on getting government-backed loans, rather than conventional loans from private lenders, which often have higher transaction fees, the report states.
Darnell L. Williams, chief executive of the Urban League of Eastern Massachusetts, said he's "sadly not surprised" by the report's findings, because they are consistent with what other studies of lending to minorities have shown.
"It's just dismal," Williams said. "Even when they have the same education and salaries, [minorities] are still getting rejected or slapped with higher fees."
The report was sponsored by the Massachusetts Community & Banking Council, a nonprofit group of private organizations and financial institutions promoting improved lending practices in lower-income communities.
There are some bright spots in the lending world.
Local banks and credit unions that are covered by the federal Community Reinvestment Act — which requires financial institutions with retail branches to do business in the communities where they are located — generally have a better record of issuing home-
purchase loans to blacks and Latinos, Campen said.
Jon Skarin, senior vice president of the Massachusetts Bankers Association and a member of the Massachusetts Community & Banking Council, said institutions with local branches in the area are striving to comply with CRA rules and to reach out to the minority community.
"They're doing a good job, but there's clearly a lot of room for growth and improvement," Skarin said.
The cause of the wide racial lending disparity, according to Campen's report, appears to lie with financial institutions that are not covered by the CRA, such as many independent mortgage lenders and out-of-state banks with no bank branches in the area.
Among institutions with the lowest loan rates to minorities is JP Morgan Chase, which was the 11th-largest lender last year in Greater Boston but ranked only 44th in its percentage of loans (1.9 percent) to blacks and Latinos, according to the report.
Elizabeth Seymour, a spokeswoman for JPMorgan Chase & Co., which does not have retail branches in Massachusetts, said in a statement: "We lend to all individuals and families regardless of gender, race, or ethnicity and have a variety of loan options available to all qualified home buyers.''