INDIANAPOLIS – Minority residents in the United States have historically faced discriminatory lending practices. New analysis from the IU Public Policy Institute finds inequities still exist when it comes to home loan lending.
In Marion County, 1 in 5 people live in a majority-Black neighborhood. Homeownership rates in these areas are about 42 percent, lower than the county rate of 54 percent. That’s despite the fact that homes in these areas typically cost less than the average Marion County home.
“Owning a home is one of the most important ways families can build wealth and increase their financial security,” says Joti Martin, a policy analyst at the IU Public Policy Institute. “Yet for far too many families of color, the dream of homeownership may still be out of reach because of inequities in home lending practices.”
Martin led a team of analysts who examined home loan applications and denials in Marion County’s majority-Black neighborhoods. Using data from the 2018 Home Mortgage Disclosure Act, they found:
- Black residents in majority-Black areas are both the least likely to apply for a home purchase loan and the most likely to be denied when they do apply.
- Lenders denied 11 percent of home purchase loan applications from residents in majority-Black neighborhoods, compared to 3 percent in non-majority-Black neighborhoods.
- Lenders denied 32 percent of refinancing applications from majority-Black neighborhoods, compared to 22 percent in other areas.
- Lenders denied 42 percent of home improvement applications from majority-Black neighborhoods compared to 36 percent of applications from different neighborhoods.
- Even within majority-Black neighborhoods, home loans were denied more frequently from Black and Hispanic/Latinx residents than from their white neighbors.
- Hispanic/Latinx residents are the least likely to secure a home improvement loan, regardless of where they live.
- Black applicants in majority-Black neighborhoods are more likely to secure a home improvement loan than Black residents in other parts of Marion County.
Higher rates of denials have long-term impacts on majority-Black neighborhoods and the people who live there, but lending companies can help. They can connect residents to loan programs that offer features like down payment assistance or have relaxed mortgage requirements. They can offer budgeting classes, credit counseling, or pre-purchase homeownership counseling to help residents increase financial literacy and money management skills, opening the door to homeownership opportunities.
Financial institutions must also ensure equitable banking terms for all customers, prioritize diversity among their lending staff, re-evaluate compensation structures that could prioritize working with high-income clients over low-income clients, and partner with local groups that have strong ties and investments in Marion County’s Black neighborhoods.