Black and Hispanic borrowers are less likely than white and Asian borrowers to be approved for a conventional home loan, according to a Zillow analysis of new data from the Home Mortgage Disclosure Act. The homeownership gap between white and black households has remained largely consistent for a century.
Although the number of black and Hispanic borrowers denied conventional loans is on the decline, it is still higher than the average 10.4% denial rate overall in 2015. In 2015, 22.4% of black applicants were denied compared to 30.5% in 2010; meanwhile, 17.3% of Hispanic applicants were denied in 2015, down from 25% in 2015.
However, more black (65%) and Hispanic (68%) borrowers said they considered homeownership necessary to "living the American Dream," Zillow reported, compared to white (59%) and Asian (58%) borrowers.
Even with homeownership rates near their lowest levels in half a century, owning a home is still considered the primary way for individuals to build equity. That is expected to continue to drive individuals toward homeownership, even as limited inventory and high demand in markets nationwide propel prices skyward and keep many would-be buyers from making a purchase.
In its October Insight, Freddie Mac noted the potential for greater homeownership rates among "non-white demographics," according to Housing Wire, and cautioned that overlooking their potential as homeowners "will become increasingly expensive." The biggest opportunity for homeownership comes from Hispanics, which The Urban Land Institute noted recently should account for more than half of household formations between 2020 and 2030 but struggles to access the credit needed to purchase a home.
Last year, Fannie Mae introduced a mortgage program that would let households count income from non-borrowers toward loan qualification, according to The Wall Street Journal, which noted that the program is open to low-income borrowers.
For some buyers, however, high prices aren’t the only barrier. Mortgages offered to blacks and Hispanics tend to be higher-cost. A February 2016 study from the National Bureau of Economic Research determined that race and ethnicity were key factors in whether a borrower got a high-cost loan, The Atlantic reported. The likelihood of Hispanic Americans and black Americans getting a high-cost mortgage was 78% and 105%, respectively, even controlling for factors like credit score and debt-to-income ratio.