Five decades after the Fair Housing Act prohibited racial discrimination in lending, African Americans continue to be denied conventional mortgage loans at rates far higher than white homebuyers, especially in the South.
Reveal from The Center for Investigative Reporting conducted a yearlong analysis of 31 million Home Mortgage Disclosure Act records covering nearly every time an American tried to buy a home with a conventional mortgage in 2015 and 2016. Controlling for nine economic and social factors, including applicants’ income, loan amount, and the neighborhood where they wanted to buy, the analysis found that racial disparities persist in 61 metro areas across the country, including Atlanta, Detroit, Philadelphia, St. Louis, and San Antonio. African Americans faced the most discrimination in Southern cities – Mobile, Alabama; Greenville, North Carolina; and Gainesville, Florida.
Reveal reports that lenders do not dispute that they deny loan applications from people of color at rates far greater than whites, but they say the disparity can be explained by hidden factors, like credit scores, which are not publicly available. Studies have found that credit score algorithms have a discriminatory impact on borrowers of color, and their failure to take into account rent, utility, and cell phone bill payments disproportionately hurts African Americans, Latinos, and young people.
The History of Racial Inequality: Redlining
In the 1930s, surveyors with the federal Home Owners’ Loan Corporation drew lines on maps and colored some neighborhoods red, deeming them "hazardous" for bank lending. Leading causes of risk, according to government officials, included the presence of African Americans.
Redlining entrenched racially segregated housing across the country, and as Ta-Nehisi Coates has pointed out, it was especially pernicious because it was federal government policy, carried out by government officials and funded by taxpayers. Through the Home Owners' Loan Corporation and the Federal Housing Administration, the federal government was "selectively granting loans and insisting that any property it insured be covered by a restrictive covenant—a clause in the deed forbidding the sale of the property to anyone other than whites. Millions of dollars flowed from tax coffers into segregated white neighborhoods." As historian Kenneth T. Jackson wrote in 1985:
"For perhaps the first time, the federal government embraced the discriminatory attitudes of the marketplace. Previously, prejudices were personalized and individualized; FHA exhorted segregation and enshrined it as public policy. Whole areas of cities were declared ineligible for loan guarantees.”
Federal Legislation to End Racial Discrimination
Redlining was outlawed in 1968 by the Fair Housing Act, and to correct the damage of redlining, the Community Reinvestment Act of 1977 required banks to solicit borrowers and depositors from all segments of their communities.
But because the Community Reinvestment Act is directed at lending in certain geographic areas, banks can meet the law's requirements by lending to white homebuyers in historically black neighborhoods. Thanks to readily available home mortgages from banks, some neighborhoods that were predominantly black decades ago have since gentrified and are now majority white.
As a result, even though racial disparities in lending persist, nearly all financial institutions nationwide have passed their Community Reinvestment Act inspections and the Justice Department has sued only a few banks for failing to lend to pepole of color since 2009.
Most recently, the Trump administration has weakened the standards banks must meet to pass a Community Reinvestment Act exam. During President Donald Trump’s first year in office, the Justice Department did not sue a single lender for racial discrimination.
Racial Inequality Persists
Federal laws designed to address the legacy of redlining have largely failed; lending patterns in many American cities today closely resemble redlining maps drawn decades ago.
Due in part to disproportionate denials of conventional mortgages to African Americans and lackluster enforcement of anti-discrimination laws, the homeownership gap between whites and African Americans, which had been shrinking since the 1970s, has exploded in the decade since the housing bust. It is now wider than it was during the Jim Crow era.
In the United States, "wealth and financial stability are inextricably linked to housing opportunity and homeownership," Lisa Rice, executive vice president of the National Fair Housing Alliance, told Reveal. "For a typical family, the largest share of their wealth emanates from homeownership and home equity." The latest figures from the U.S. Census Bureau show the median net worth for an African American family is $9,000, compared with $132,000 for a white family.
Residential segregation in America today is a legacy of our history of racial injustice. It demonstrates that federal law has not abolished the narrative of racial difference that justified slavery, evolved into lynching and Jim Crow, and is manifest in our current mass incarceration system. Until we truthfully confront our history, racial inequality in housing will persist.
As Arlene Wayns-Thomas, president of the Philadelphia chapter of the National Association of Real Estate Brokers, which represents African American real estate professionals, told Reveal, "We're talking about the same issues in 2017 that we were talking about in the 1940s."