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Home Loan Denial Rates By Race In Metro Detroit

The term “post-racial” is not a reality when it comes to home loan applications nationally or in Metro Detroit. According to a recent study released by the home information website Zillow.com, there is severe inequality between races when it comes to getting a home loan, one of the cornerstone pieces of the American experience. This is the first time they’ve looked at the data in this way on a metropolitan level.

In Metro Detroit the denial rate for Black applicants, however, is more than double those of Whites which is consistent with the national trend (see graphic below). Hispanics fare slightly better in Metro Detroit compared to the national average.

“While many of the disparities between the experiences of white communities and minority communities during the housing boom and bust can be explained by plain differences in finances and geography, it’s clear that the housing playing field remains strikingly unequal in this country,” said Zillow Chief Economist Stan Humphries.

The denial data by race reveals persistent housing and access-to-credit issues for minorities across the country.

Another layer is that in the City of Detroit, where minorities make up the majority of the cities population, it can be very difficult to get a conventional home loan. Only between 300 and 400 mortgages were written within the borders of the city last year, with most rehabilitation funded by cash or financing not tied to the property.

Currently, as Federal guidelines on making loans are very specific (and the Feds end up buying or insuring most of the loans), Mayor Mike Duggan is working on a plan to create financing through a land contract mechanism, but that’s not here yet. There’s also the Detroit Land Bank Authority which is moving houses through an online auction process, but that’s designed to stabilize neighborhoods, not correct the Detroit real estate market, which is anything but normal.

Another problem, especially in a city that is composed of a population that is 92.2% minority (that figure is including all non-whites) is income inequality.

“Black and Hispanic applicants [nationally] for conventional home loans make roughly $20,000 less per year than white applicants, resulting in much higher denial rates. Similarly, black and Hispanic communities are clustered in areas that saw huge run-ups in home values prior to the recession, and even larger drops during the crash,” said Humphries. “But there are some reasons for optimism. Home values in black and Hispanic communities are expected to rise faster over the coming year, and the data shows that Federal Housing Administration-backed loans have proven to be a viable and critical source of financing in minority communities.”

Home Loans by Race in Metro Detroit