2020 State of Housing in Black America

Vanessa Gail Perry

Michelle Aronowitz ♦ Jung Hyun Choi ♦ Edward Golding
Morgan Green ♦ Richard K. Green ♦ Maurice Jourdain-Earl
Ashlyn Aiko Nelson ♦ Lauren Rhue ♦ Lisa Rice

Experts Weigh In

Lingering Effects of Discrimination by Banks in the Maintenance of Foreclosed Homes on Communities of Color

by Lisa Rice

NFHA and 19 of its partner organizations1 have now investigated more than 6,700 Real Estate Owned2 (REO) properties in 37 metropolitan areas throughout the nation. The investigations revealed that banks and investors owning these homes seem to have engaged in troubling discriminatory patterns regarding the maintenance and marketing of these units. REO homes in majority White neighborhoods were cared for in a far superior manner than those in majority African American and/or Latino neighborhoods. The evaluations took into account 37 different aspects of the maintenance and marketing of each property, including curb appeal, structure, signage, indications of water damage, and condition of paint, siding, and gutters/downspouts. The investigations were conducted in neighborhoods where homeownership rates were high prior to the advent of the foreclosure crisis in 2007.

While REO properties in predominantly White neighborhoods were more likely to have neatly manicured lawns, securely locked doors, and attractive, professional “For Sale” signs out front, REOs in Communities of Color were more likely to have overgrown yards, trash, unsecured doors, and broken or boarded windows. REO properties in Communities of Color were not maintained to the standards of nearby homes and generally appeared abandoned, blighted, and unappealing to potential homebuyers, even though they were located in stable neighborhoods in which neighboring homes were well maintained. On the other hand, REOs in White communities were maintained to the standards of other houses in the neighborhood and would have been attractive to real estate agents and potential homebuyers.

Examples of investigative findings include:

NFHA’s research and analysis of the disposition of REO units reveals lingering negative effects of poor maintenance of properties in Communities of Color.  Homes that were poorly maintained (those with 10 or more maintenance and marketing deficiencies out of the 37 examined) were more likely to sell to investors, and homes that were well maintained (those with less than 10 maintenance and marketing deficiencies) were more likely to sell to owner-occupants.  The findings of one analysis of REOs investigated by NFHA in Maryland show that:

When analyzing the data for race of the neighborhood, the outcomes are even more problematic:

NFHA and its partner organizations have filed lawsuits against several financial services entities based on the findings of the investigation.  Three separate lawsuits have been filed in three different federal district courts.  The courts have rendered very favorable decisions opposing the lenders’ requests to have the cases dismissed.  Each federal district court has ruled that the cases can proceed based on intentional and disparate impact claims of discrimination3.

Real Estate Sales Discrimination

Last year, Newsday released an alarming report, Long Island Divided, documenting high levels of discrimination Long Island in New York.  Newsday’s three-and-a-half year investigation entailed 240 hours of secretly recorded meetings between fair housing testers and real estate agents and an analysis of 5,764 house listings. It revealed a 19 percent rate of discrimination against Asian Americans, 39 percent rate of discrimination against Latinos, and 49 percent rate of discrimination against African Americans. Altogether, the agents in the Newsday investigation gave White testers 50 percent more listings than those given to their equally qualified Black counterparts.

The findings in the Newsday investigation were not new.  They bear strikingly similar patterns uncovered during a multi-year, 12-city investigation conducted by NFHA from 2003 – 2007.  In that investigation, NFHA found an 87 percent rate of racial steering.  In both the Newsday and NFHA investigations, real estate agents used schools as a racial proxy for steering consumers.  Additionally, both investigations also revealed the following patterns of discrimination:

In the aftermath of the Newsday investigation, civil rights leaders and industry leaders, including NAREB, have called for sweeping changes in the real estate market to include4:

The Fight for Fair Housing – Stopping Recent Attempts to Roll Back Critical Fair Housing Protections

The Trump Administration has engaged in numerous efforts to roll back fair housing and civil rights5.  Perhaps one of the most important civil rights tools to come under attack is the Affirmatively Furthering Fair Housing (AFFH) standard.  The Administration proposed a new rule in January, 2020 that would effectively gut AFFH making it harder to address housing discrimination.

In an effort to help eliminate discrimination and reverse centuries of discriminatory housing policies and practices, many established by the federal government, Congress passed the Fair Housing Act of 1968.   The law, which NAREB helped to pass, included the AFFH provision which requires any jurisdiction or entity that receives federal funds for any housing or urban development purpose to utilize those funds in a way that affirmatively furthers the goals and principles of the Fair Housing Act.  In effect, these entities must administer their funds and programs in a non-discriminatory fashion, help reduce residential segregation, and work affirmatively to promote fair housing.

The Trump Administration’s attack on AFFH could not have come at a worse time.  Communities have erupted in protests in the aftermath of the murders of George Floyd, Tony McDade, Sean Reed, Breonna Taylor, and Ahmaud Arbery. The protests are not only about these senseless murders; protestors are marching because they are fighting to ensure this country embodies its greatest ideals and lives up to the promise it made to the American people.  That promise cannot be kept without tackling and redressing our nation’s legacy of housing discrimination and its stubbornly entrenched harms.

When it comes to housing and lending patterns, we might as well be living in 1890.  Our communities are more segregated today than they were 100 years ago and the racial homeownership gap – at 30% points - is back to where it was in 18906.   The gap is larger than it was when redlining was legal.  According to the U.S. Census, the homeownership rate for Whites is roughly 74%.  Comparatively, the rate for Blacks and Latinos is 44% and 49% respectively.  Whites have 10 times the wealth of Blacks and 8 times the wealth of Latinos. Lending redlining is flourishing and housing discrimination is still the norm in too many communities. 

Our markets are not fair. They do not work for people of color, women, and people with disabilities. 

The bias in our markets are not a bug but a feature. They were built that way and intended to operate in a discriminatory fashion. They will continue to do so until we make structural, systemic, and cultural changes.  From the inception of this nation our housing and finance policies were explicitly discriminatory.  They created biased systems that still exist today – residential segregation, the dual credit market, and other unfair systems. We continue to see disparities and discrimination because we have not dismantled these structures of inequality. 

One of the major tools for undoing legacy systems of inequality, fashioning fairer policies, and encouraging investments in underserved areas is the AFFH provision of the Fair Housing Act. It provides a mechanism for jurisdictions and entities to identify barriers to fair housing and design meaningful, effective solutions for overcoming those impediments.  It helps ensure that Communities of Color -which are disproportionately credit, health, education, food, water and job deserts - can become communities full of the opportunities people need to thrive and live healthy lives.

NAREB has joined many others, including NFHA, NAHREP and AREAA in calling on HUD to pull back the harmful proposal the Trump Administration released in January 2020 and to reinstate the comprehensive effective AFFH rule that was promulgated in 2015.  Without full and complete enforcement of our nations fair housing laws, we will never be able to address the racial wealth and homeownership gaps.  It is both a moral and economic imperative that we use every tool at our disposal to create a fair and equitable society.  Full implementation of the 2015 AFFH rule is an important way to help make that happen.

1 NFHA’s partners include the Miami Valley Fair Housing Center in Dayton, Ohio; Housing Opportunities Project for Excellence (HOPE) working in Miami-Dade and Broward Counties, Florida; Metro Fair Housing Services in Atlanta, Georgia; North Texas Fair Housing Center in Dallas, Texas, serving the greater Dallas/Fort Worth area; HOPE Fair Housing Center in West Chicago, Illinois; Open Communities in Winnetka, Illinois; South Suburban Housing Center in Homewood, Illinois; Greater New Orleans Fair Housing Action Center in New Orleans, Louisiana; Denver Metro Fair Housing Center in Denver, Colorado; Fair Housing Center of West Michigan in Grand Rapids, Michigan; Housing Opportunities Made Equal (HOME) of Virginia in Richmond, Virginia; Connecticut Fair Housing Center in Hartford, Connecticut; Fair Housing Center of Central Indiana in Indianapolis, Indiana; Metropolitan Milwaukee Fair Housing Council in Milwaukee, Wisconsin; The Fair Housing Continuum in Melbourne, Florida; Toledo Fair Housing Center in Toledo, Ohio; the Fair Housing Center of Marin in San Rafael, California; the Housing Research and Advocacy Center in Cleveland, OH; and the Fair Housing Center of the Greater Palm Beaches.

2 Real Estate Owned properties are homes that have gone through the foreclosure process and have been purchased by the bank or investor.

3 See: National Fair Housing Alliance. (August 13, 2019). Court Denies Fannie Mae’s Motion to Dismiss in Fair Housing Discrimination Lawsuit. [Press Release] Retrieved from  https://nationalfairhousing.org/2019/08/13/court-denies-fannie-maes-motion-to-dismiss-in-fair-housing-discrimination-lawsuit/

National Fair Housing Alliance. (July 18, 2019). Judge Denies Bank of America’s Motion to Dismiss in Critical Fair Housing Lawsuit. [Press Release] Retrieved from https://nationalfairhousing.org/2019/07/18/judge-denies-bank-of-americas-motion-to-dismiss-in-critical-fair-housing-lawsuit/

National Fair Housing Alliance. (November 15, 2019) Federal Court Green-lights Fair Housing Discrimination Claims Against Major Financial Services Companies. [Press Release] Retrieved from https://nationalfairhousing.org/2019/11/15/federal-court-greenlights-fair-housing-discrimination-claims-against-deutsche-bank-altisource-and-ocwen/

4 Cloud, Cat, Debby Goldberg, Lisa Rice, Jorge Soto, and Morgan Williams. Fair Housing Solutions: Overcoming Real Estate Sales Discrimination. National Fair Housing Alliance. December, 2019.  Retrieved from  https://nationalfairhousing.org/wp-content/uploads/2019/12/Fair-Housing-Solutions-Overcoming-Real-Estate-Sales-Discrimination-2.pdf

5 National Fair Housing Alliance. Defending Against Unprecedented Attacks on Fair Housing: 2019 Fair Housing Trends Report. (2019)  Retrieved from  https://nationalfairhousing.org/wp-content/uploads/2019/10/2019-Trends-Report.pdf

6 Levitin, Adam J. (June 17, 2020). “How to Start Closing the Racial Wealth Gap.” American Prospect. Retrieved from https://prospect.org/economy/how-to-start-closing-the-racial-wealth-gap/

Artificial Intelligence and Machine Learning (AI/ML) in Real Estate

by Lauren Rhue, PhD

Overview of AI/ML in Real Estate

Artificial intelligence and machine learning (AI/ML) is poised to influence the real estate industry. The purpose of AI/ML is to find patterns in data for use in decision-making, and AI/ML can shape each decision in the real estate transaction process, from home search to closing.

Several companies are already invested in AI/ML solutions for real estate. The following three examples demonstrate uses of AI/ML related to real estate.

  1. Zillow and Redfin housing platforms use predictive models to estimate the market value for each house. The models use structured home attributes, such as the number of bedrooms, and also “scan” uploaded images for unstructured home attributes, such as curb appeal and granite countertops.1 Those price estimates influence housing markets.2 Because these sophisticated models are proprietary, real estate agents and home owners cannot “see” the models’ rationale for these home estimates. These models may systematically undervalue houses in black neighborhoods or by black owners.
  2. Social media platforms like Facebook offer micro-targeting capabilities to advertisers, and this microtargeting is driven by their predictive models. Facebook provides advertisers with the potential to include or exclude specific racial groups, even for real estate ads, so HUD sued Facebook for housing discrimination and violating the Fair Housing Act.3
  3. Lenders are ready to incorporate AI/ML into their credit decisions. One paper found that five digital attributes out-predict credit score for credit applicants on a digital platform: operating system, computer or tablet, time of day, email domain, and name. 4 The biggest deterrent to greater use of AI/ML in lending is the legal requirement that lenders must inform denied applicants of the reason for their credit denial.5
These three examples highlight the potential of these predictive models to transform real estate markets. These types of AI/ML tools could eventually be incorporated into the appraisal and other processes.

AI/ML and Black Homeownership

AI/ML models base their statistical inference on historical data, and historical data can reflect racial disparities.  Historical data can include overt anti-black discrimination, such as persistent lower neighborhood values in formerly redlined areas,6 and also discrimination by proxy, such as using healthcare spending as a proxy for illness disproportionately affects black patients.7

In the real estate context, AI/ML could increase or decrease racial disparities. Black borrowers face 3.6 higher basis points on their interest rates for home-purchases and refinancing loans,8 a pattern that could be picked up by predictive models. However, initial research found that algorithms from online-only lenders discriminated 40% less than borrowers with face-to-face lenders.9 Because home ownership is such an individualized process, automated discrimination is more difficult to detect.

The move towards AI/ML in real estate will provide new challenges and opportunities for black homeownership. The growing concern over algorithmic discrimination is generating increased interest in AI/ML fairness, but black homeownership could be negatively impacted by AI/ML unless there is consistent oversight to guard against perpetuating patterns of discrimination.

1 Zillow’s AI/ML & Research. https://www.dotloop.com/blog/artificial-intelligence-in-real-estate/

2 Harney, K.R. (2019) Which is more accurate: Zillow’s Zestimate or Redfin’s Estimate? Washington Post, Feb. 20, 2019. https://www.washingtonpost.com/realestate/which-firm-has-more-accurate-online-estimates-for-homes-zillow-or-redfin/2019/02/19/7a1f6436-346b-11e9-a400-e481bf264fdc_story.html

3 Jan, T., and Dwoskin, E. (2019). HUD is reviewing Twitter’s and Google’s ad practices as part of housing discrimination probe. Washington Post, March 28, 2019. https://www.washingtonpost.com/business/2019/03/28/hud-charges-facebook-with-housing-discrimination/

4 Berg, T., Burg, V., Gombović, A., & Puri, M. (2020). On the rise of fintechs: Credit scoring using digital footprints. The Review of Financial Studies, 33(7), 2845-2897. https://www.fdic.gov/bank/analytical/cfr/2018/wp2018/cfr-wp2018-04.pdf

5 Klein, A. (2019). Credit Denial in the Age of AI. Brookings Institution, A Blueprint for the Future of AI. https://www.brookings.edu/research/credit-denial-in-the-age-of-ai/

6 https://www.brookings.edu/research/americas-formerly-redlines-areas-changed-so-must-solutions/

7 Obermeyer, Z., Powers, B., Vogeli, C., & Mullainathan, S. (2019). Dissecting racial bias in an algorithm used to manage the health of populations. Science, 366(6464), 447–453. https://doi.org/10.1126/science.aax2342

8 Bartlett, R., Morse, A., Stanton, R., & Wallace, N. (2019). Consumer-lending discrimination in the FinTech era (No. w25943). National Bureau of Economic Research. https://faculty.haas.berkeley.edu/morse/research/papers/discrim.pdf

9 Bartlett, R., Morse, A., Stanton, R., & Wallace, N. (2019). Consumer-lending discrimination in the FinTech era (No. w25943). National Bureau of Economic Research. https://faculty.haas.berkeley.edu/morse/research/papers/discrim.pdf

Status of HUD’s Proposal to Revise the Disparate Impact Standard

by Michelle Aronowitz

The Department of Housing and Urban Development is in the process of revising its Fair Housing Act regulations in a manner that promises to shield lenders, mortgage insurers, and the entire secondary market from liability for systemic housing discrimination.  This is just one of the many Obama-era civil rights and consumer protection regulations the Trump administration has or is in the process of dismantling.

On August 19, 2019, HUD proposed revisions to a 2013 regulation that articulates the standards for proving systemic discrimination under the Fair Housing Act.  This so-called “disparate impact” or “discriminatory effects” standard has been in operation for over 40 years and in 2015 was upheld by the U.S. Supreme Court.  In Texas Department of Housing and Community Affairs v. Inclusive Communities Project, the Court held, in a decision by now-retired Justice Kennedy, that the Fair Housing Act authorizes consumers to proceed under a disparate impact standard to “permit plaintiffs to counteract unconscious prejudices and disguised animus that escape easy classification as disparate treatment.” 

The disparate impact standard allows consumers to hold banks liable for underwriting and pricing discrimination, for example, by identifying significant outcome disparities that have no necessary business justification.  Consumers are not required to prove the bank intended to treat Black customers worse than White customers, just that the bank’s practices caused such effect without justification.  Dismantling this standard guts the heart of the Fair Housing Act and risks deepening already entrenched patterns of segregation and wealth disparities in this country.

Aside from placing an insurmountable burden of proof on plaintiffs, HUD proposes to exempt algorithmic decision-making (basically, all mortgage lending) and insurance companies from coverage.  This means fintech companies would be immune from liability—unless of course, following the Facebook model, they expressly select their customers or assign mortgage rates by race, national origin, or another trait protected by the Fair Housing Act.

HUD’s proposal to amend the Fair Housing Act regulation, if finalized, will no doubt be challenged in court immediately.  Also, the proposal would not affect the essentially identical disparate impact standard under the Equal Credit Opportunity Act, a standard that was put in place in 1974 by the Board of Governors of the Federal Reserve System.  The proposed effect of HUD’s rule change is dramatic; its actual effect on the mortgage market is yet to be seen.

On October 16, 2019, NAREB submitted a public comment, joined by other real estate trade associations, opposing HUD’s proposal.  Among other things, NAREB pointed out that “a robust disparate impact standard is critical for driving marketplace innovations and helping to create a strong economic and business environment.”

Credit scoring has both directly and indirectly affected the ability of people of color to access low-cost home loans

by Richard K. Green & Ashlyn A. Nelson

The most direct impact is on people who have no credit scores at all—those who are called "credit-invisibles," and those with thin or stale credit files.  These people are precluded from gaining access to mortgage credit, though no evidence indicates that they are bad credit risks.  For example, someone who has always paid their phone bill and rent on time gets no "credit" for doing so, and yet is almost certainly a good credit risk.  According to the Consumer Finance Protection Bureau, African-Americans of prime home-buying age are twice as likely to be credit-invisible as non-Hispanic whites.1

The influence of credit invisibility on mortgage lending also affects those who have good credit scores.  Consider a couple, where one person is credit invisible, and the other has a strong credit score.  Lenders will advise the couple to have one loan applicant—the member with the credit score.  As a result of this, the couple’s measured income is lower than their actual income, meaning that they might fail lenders' debt-to-income (DTI) test. In other words, if both members of the couple earn the same income, the DTI will appear on the loan application to be twice the size that it actually is.  Thus a couple where one person has a strong credit score, the other has no history of poor credit performance, and where income is more than sufficient to meet any reasonable ability to repay requirement, could wind up unable to get a mortgage.

Even more insidious is how credit scores perpetuate inequities across generations.  Consider two young adults who work equally hard and finish college.  One has parents who are sufficiently wealthy to pay for college; the other must borrow to pay for college.   By definition, the child of the wealthy parents has a smaller debt burden, and is therefore in a much better position to achieve a top credit score, than the child of the parents who are unable to pay for college.  Data demonstrate time and again that a non-Hispanic white child is much more likely to have parents with the ability to pay than children from other races and ethnicities (see, e.g.,  Consumer of Survey Finances 2016).  Thus, on average, being born white is a ticket to a better credit score in young adulthood.  This advantage is one of the many underlying causes of the homeownership gap between white and non-white households, which perpetuates the wealth gap.

Recent credit scoring innovations, such as the FICO Resilience Index piloted in summer 2020, are likely to exacerbate these gaps. The FICO Resilience Index is a composite score ranging from 1 to 99 that measures the ability of consumers to continue making payments on debt during times of economic stress. Scores ranging from 1 to 44 indicate that a consumer is likely to be able to continue making payments during economic downturns, while scores above 77 indicate less resilience. In the near future, lenders may begin using the Resilience Index alongside traditional credit scores in their lending decisions. On average, people of color earn lower incomes and have lower levels of savings and wealth, so they have fewer resources upon which to draw when facing economic stress. Therefore, the Resilience Index is likely to disparately disadvantage people of color and widen the gap in access to credit.

How may we reverse this? Financial inclusion in the formal banking sector is a necessary first step toward ensuring all Americans may establish a credit history. We need to make bank accounts freely and inexpensively available so that everyone who wants one has one.  Currently, about 32 million American households are unbanked or underbanked.2 Bank charters are valuable (particularly during times like now, when banks may borrow at close to zero cost).  Banks should be required to help commnnities that have been ignored in exchange for those charters.

Another method for reducing the population of credit invisibles is to model good savings and spending behavior by looking into checking and savings accounts to observe reliable rent and utility payments, and correlate them to loan performance. Credit scoring agencies could then adapt their credit-scoring algorithms to include this information, thereby reducing the universe of credit invisibles. 

1 See https://www.consumerfinance.gov/data-research/research-reports/data-point-credit-invisibles/.  Accessed July 13, 2020.

2 See https://www.fdic.gov/householdsurvey/.  Accessed July 13, 2020.

The COVID-19 Forbearance Moratorium Enlarges the Wound Caused by the Lack of Homeownership in Black America

by Maurice Jourdain-Earl


Congress passed The Coronavirus Aid, Relief, and Economic Security Act (H.R.748), also known as the CARES Act, on March 26, 2020. The two trillion-dollar stimulus package is designed to help America fight the devastating spread of the COVID-19 disease and prevent the US economy from collapsing. The CARES legislation is the largest emergency aid package in US history. It is a massive financial injection into our struggling economy with provisions aimed at helping American workers, homeowners, small businesses, and industries grappling with the economic disruption from the coronavirus pandemic.

Unfortunately, there is no provision in Sec. 4022 to help renters. Sec. 4023 however, gives multifamily property owners the right to request a forbearance and renters receive eviction protection should the landlord choose to participate in the program.

Section 4022 of the CARES Act gives American homeowners the right to request a forbearance to stay in their homes and avoid foreclosure. This section gives a borrower with a federally backed mortgage loan (FBML) experiencing financial hardship, due directly or indirectly to the COVID–19 emergency, the right to request a forbearance on FBMLs from the loan’s servicer, regardless of delinquency status.

Forbearance is a temporary postponement of mortgage payments. It is a form of repayment relief granted in lieu of forcing a property into foreclosure. Forbearance does not erase what is owed. The borrower has to repay any missed or reduced payments of principal and interest in the future. The missed payments can be paid at the end of the forbearance period, tacked on at the end of the mortgage term, or the loan can be refinanced or modified.

Section 4022 of the CARES Act will have a disparate impact on black Americans because it is designed to help homeowners. White Americans, with a 73.7% homeownership rate, own more homes relative to their proportion of the population, compared to a 44% black homeownership rate.

Figure 1: 1st Quarter 2020 the U.S. Census Bureau Homeownership Rates by Race

Whether homeowners are facing job loss, reduced income, illness, or business closures or other issues that impact their ability to make monthly mortgage payments, the government is working to ensure they are protected. Loan servicers have been directed to provide mortgage relief options that include:

“With no fees, penalties, or interest, the servicer by law is expected to provide the forbearance for up to 180 days, which may be extended for an additional period of up to 180 days at the request of the borrower.”1

Federally backed mortgage loans include any first or subordinate lien on residential real property (including condominiums and cooperatives) designed for 1-4 families that is insured by the Federal Housing Administration (FHA), guaranteed or insured by the Department of Veterans Affairs (VA), guaranteed or insured by the Department of Agriculture (FSA/RHS), and loans purchased or securitized by Fannie Mae and Freddie Mac (the Enterprises).

Renter Protections During A Multifamily Forbearance Period

With a 44% homeownership rate, the vast majority of black Americans are renters. Sec.4023 covers forbearance on multifamily properties with federally backed loans. Owners of multifamily properties may submit an oral or written request for forbearance to the borrower’s servicer affirming that the multifamily borrower is experiencing a financial hardship during the COVID–19 emergency.

Upon receipt of an oral or written request for forbearance from a multifamily borrower, a servicer shall document the financial hardship; provide the forbearance for up to 30 days; and extend the forbearance for up to 2 additional 30 day periods upon the request of the borrower.

“During the multifamily owner’s forbearance period renter’s receive eviction protection. A multifamily borrower that receives a forbearance under this section may not, for the duration of the forbearance period—evict or initiate the eviction of a tenant from a dwelling unit located in or on the applicable property solely for nonpayment of rent or other fees or charges; or charge any late fees, penalties, or other charges to a tenant for late payment of rent. If a landlord does not participate in the forbearance program, renters are subject to local eviction processes.”2

Section 4023 benefits landlords, renter’s eviction protection is an afterthought. Eviction protection for renters in no way compares to the financial safety net of upwards to 12 months of delayed mortgage payments available for homeowners. Renters are expected to pay rent.

Execution of the CARES Act

Anecdotally, very few people in my circle of family, friends, and industry associates are aware of Sec. 4022, and if they are aware, they do not fully understand how it works. I know of multiple families with FBMLs who are suffering from COVID-19 financial hardships and qualify for the forbearance program. I told each family about the program and asked that they share the information with their network. It became clear that homeowners in the black community are not aware of Sec. 4022 of the CARES Act. It also became abundantly clear how important it is for the program to be properly executed.

The following are a few examples:

A realtor in Gaithersburg, MD experienced a significant reduction in her real estate business. She called her servicer, one of the 10th largest banks in the country, requested a Covid-19 forbearance on the conventional loan on her townhouse and was initially flat-out denied. It took multiple calls, long wait times, and an escalation to higher authorities for her to get a 180-day forbearance on both her first and second mortgage.

A nurse and single mother of three is experiencing financial hardships. She provides IV infusions to patients in their homes. Having three children at home accumulates extra expenses and requires extra care because of the coronavirus. She has an FHA loan, called her servicer, a top 40 independent mortgage company, and requested mortgage relief. The servicer knew nothing of the COVID-19 forbearance program, offered her a 3-month forbearance, saying the delayed payment would be due at the end of the forbearance period. This case is still unresolved.

A small family-owned restaurant with a staff of 12 applied for a Paycheck Protection Program (PPP) loan from a large bank that had their personal and business accounts. The PPP loan was denied without any explanation. The restaurant laid off its employees and had to close. Now with no family income, there was fear of losing their home to foreclosure. I informed the small business owner about the Sec. 4022 forbearance moratorium. They requested one from their mortgage servicer. Again, only through persistence, multiple calls, escalation to senior managers and the threat of a complaint to the Consumer Financial Protection Bureau (CFPB) was the family finally able to get the needed mortgage relief.

All of the above families are black. The treatment each family experienced may or may not have been based on a prohibited basis. But their experience reflects the need for fair servicing monitoring for both PPP loans and Sec. 4022 forbearance transactions.

CFPB Director Kathy Kraninger recently spoke before the Consumer Data Industry Association, sounding a note of caution to the industry as the bureau found consumer complaints at all-time highs in April and May. She noted the work that servicers, furnishers, and consumer reporting agencies need to do to help troubled consumers during the pandemic

Data by race, geography, and borrower qualification is needed to perform this type of fair lending analysis. This data on home mortgages is readily available from servicers because those records were reported to the government via the Home Mortgage Disclose Act (HMDA).

PPP loan data, however, has not been made public. If/when the data become public, it will need to be race-estimated to get proxies for race and gender. First and last names will be needed but can be anonymized for privacy purposes. The same is true of property addresses, which are needed to geocode the data to determine the demographic makeup of neighborhoods where the PPP loans were granted.

According to the McDash Flash Forbearance Tracker, “As of June 2, 2020, 4.73 million homeowners have already taken advantage of the government’s forbearance program – or 8.9% of all mortgages – are in COVID-19 mortgage forbearance plans”.3 Unfortunately, knowledge of the forbearance moratorium is not widespread, by homeowners or servicers. It is curious how, since its enactment on March 26, 2020, 4+ million homeowners have become aware of the CARES Act forbearance moratorium. No one in my network was aware of Sec. 4022.

Fortunately, in the CARES Act, Congress removed qualification barriers that existed in great recession loss mitigation programs. Sec. 4022 of the bill makes it easy for all FBMLs to be eligible. To get a COVID–19 forbearance, a homeowner can simply make a request from their mortgage servicer. No additional documentation is required, other than the assertion of a financial hardship caused by the COVID–19 pandemic. However, all American homeowners with an FBML experiencing financial hardship need to know about this provision of the two trillion-dollar CARES Act.

COVID-19 Hits Black Community the Hardest

The numbers below illustrate the need to make all Americans with FBMLs aware of Sec. 4022. More specifically, the numbers show why a concerted effort is needed to reach black American homeowners. Unless Sec. 4022 is executed appropriately, there is the potential to enlarge the wounds of racial disparities in homeownership, specifically the wounds affecting black homeownership preservation.

It is well documented that the black community has been hit the hardest, in all kinds of ways, by the effects of the coronavirus. Whether facing job loss, reduced income, illness, or business closures, the pandemic has been devastating to the black community. In addition, many black Americans are front-line essential workers. They do not have the benefit of being able to work from home, nor able to self- quarantine because they live in apartments, putting their loved ones at risk every day.

Black small businesses are also drastically impacted, both by the health crisis and the risk of losing their livelihood. Moreover, many of the small business owners are likely to be homeowners and could face a triple whammy of illness, business closure, and possibly foreclosing on their home.

Based on these current and historical financial, income, wealth, and health disparities, it can be deduced that blacks are more likely to experience COVID-19 financial hardships than other communities. This intensifies the need to get the word out to black homeowners with federally backed mortgages that may qualify and need mortgage payment relief.

Racial Disparities with FBMLs Favor White Americans

Using ComplianceTech’s HMDA data mining software LendingPatterns™, 13-years of mortgage data were stratified with the requisite filters to show the number of loans purchased or securitized by the Enterprises by race and the number of government loans (FHA-VA-FSA/RHS) originated by lenders by race.4

White Americans have more FBMLs that could potentially qualify for the forbearance moratorium. The loans presented do not imply these borrowers are experiencing financial hardships and qualify for the forbearance moratorium. Nor does the data attempt to suggest this pool of loans is the universe of FMBLs. In fact, it is highly probable there are many FBMLs outstanding, not included in this 13-year dataset. In addition, many, if not most loans made to all racial groups are not FBMLs and do not qualify for the forbearance moratorium. For instance, loans not sold remain in lenders portfolios and loans sold to non- agency investors, fall into these categories.

Thus, the numbers presented have inherent limitations. They however, offer a very good representative sample to illustrate how white Americans are better positioned to benefit from the forbearance moratorium and the significance of getting the word out to the small number of black homeowners who could qualify and benefit from the mortgage relief program.

Table 1 shows the number of FBMLs by race between 2007-2019. Overall, of the 46.5 million FBMLs, white Americans accounted for 35.8 million or 77%; black 3.3 million or 7%; Latinx 4.7 million or 10%; and Asians 24 million or 5.2%. Native American and Hawaiian shares were both less than .003%.

Table 1: FBMLs by Race (2007-2019)

  White Black Latinx Asian Native Amer. Hawaiian Total
Fannie-Freddie 21,599,014 969,570 2,047,537 1,953,090 62,370 76,137 26,707,718
FHA-VA-FSA/RHS 14,195,285 2,285,056 2,644,670 458,637 96,194 82,356 19,762,198
FBML 35,794,299 3,254,626 4,692,207 2,411,727 158,564 158,493 46,469,916
When the subgroups of FBMLs, i.e., Fannie Mae and Freddie Mac versus FHA-VA and FSA/RHS are viewed separately however, the data reveals a disturbing story. For example, of the 26.7 million FBMLs purchased or securitized by the Enterprises, 21.6 million or 80.87% were white. On the other hand, of the 3.3 million black FBMLs the Enterprises purchased or securitized only 969,570 or 3.63%.

By contrast, of the 19.8 million FHA-VA-FSA/RHS loans, 14.2 million or 71.8 were white. Of the 3.3 million black FBMLs 2.3 million or 11.56% were FHA-VA-FSA/RHS. In other words, black FBMLs are 3.5 times more likely to be FHA-VA-FSA/RHS versus loans purchased or securitized by Fannie Mac and Freddie Mac. Table 2 shows the 13-year average percent of FBMLs for each subgroup by race.

Table 2: 13-year Average percent of FBMLs

Race Fannie-Freddie FHA-VA-FSA/RHS
White 80.87 71.83
Black 3.63 11.56
Latinx 7.76 13.38
Asian 7.31 2.32
Nat Amer 0.24 0.5
Hawaiian 0.29 0.4
The Enterprises do not originate loans, lenders do. The Enterprises and their regulator the Federal Housing Finance Agency (FHFA) have a tremendous influence on loan origination activities in America with their underwriting, pricing, and purchase guidelines. It could be their guidelines are too restrictive and black Americans, for many reasons, do not meet the Enterprises guidelines. Either way, the Enterprises have no control of lenders. Lenders could be the perpetrators because of some of the following reasons if they:

  1. Do not obtain black loan applications
  2. Discriminate in their lending practices and do not have an adequate compliance management system to detect disparities
  3. Do not originate black loans of the type the Enterprises buy, i.e., FHA, VA or FSA/RHS or subprime
  4. Choose not to sell black loans and keep them in portfolio or
  5. Sell them to non-agency investors
This pattern of lending in America is direct evidence of a government-sponsored dual mortgage market: one white and one black, separate, and unequal. Fannie Mae and Freddie Mac predominantly serve the mortgage finance needs of white and Asian Americans. While the largest share of FHA, VA and FSA/RHS loans are also white, without the government loan programs, black and Latinx homeownership rates would be even lower. The CARES Act and Sec. 4022 can be an important provision to help black homeowners with home preservation. During the great recession, a disproportionate number of black homeowners lost their homes to short sales or foreclosures.

Targeted Execution of the COVID-19 Forbearance Moratorium is Critical

Although the number of black FBMLs are small, an intentional and targeted effort is needed to help black homeowners become aware of Section 4022 of the CARES Act. We must circulate government created guidance designed for the industry to understand servicers responsibilities under the law. We must circulate government guidance to consumers, with special emphasis on how to reach black Americans. We must use all available media outlets to get the word out.

Using word of mouth from the lending industry will not work because of the lack of diversity in the industry. Industry newsletters and webinars will not work because the readership and viewer are not directed to black Americans. Nor will public announcements by industry leaders work.

We must engage black churches and religious organizations, community organizations, black civil rights organizations, black fraternal organizations, and black real estate organizations, etc. We must connect with black celebrities to film public service announcements, run ads on social media such as Instagram and Facebook. White lenders, realtors, and mortgage trade organizations etc. also have a role to play. Using their vast resources, their involvement in promoting the availability of Sec. 4022 to black homeowners could be advantageous.

The promotion of the forbearance program to existing black homeowners will send a strong message to black non-homeowners. It can be used to send a strong message that homeownership despite its challenges, is better than renting.

All Americans, especially black Americans, should be aware of information the government has made available to explain Section 4022 of the CARES Act. For example, on June 5, 2020, the CFPB and Conference of State Bank Supervisors (CSBS) issued a joint press release to provide further clarity on the CARES Act forbearance and foreclosure to mortgage servicers. Consumers should read this release. It will let them know what the rules and expectations are for servicers.


It provides an:

Finally, a joint website has been developed by the CFPB and the Department of Housing and Urban Development (HUD) to inform consumers about mortgage and housing assistance during the coronavirus national emergency. However, the website has not been widely promoted as a resource for homeowners experiencing COVID-19 related financial hardships.


It is important to know that in every major economic crisis, the American government has always bailed out and developed programs to advance homeownership. The great depression, the G.I. bill, the bailout of the great recession, and now the bailout during the great lockout; these programs have always helped white Americans stay in their homes. In other words, white Americans, sometimes need help too.

In closing, the black American population is being hit with a perfect storm. First, due to the overall low homeownership rate, the majority of black Americans are renters. Renters experiencing financial hardships only receive eviction protection from the CARES Act, and only then, if the landlord participates in the forbearance program. Second, comparatively, there are a small number of black FBMLs, but it is important to help those experiencing COVID-19 financial hardships keep their homes, especially since the majority of black loans do not qualify as FLBMs. Third, on top of all this, because of the lack of awareness due to poor outreach efforts, black Americans are not able to take advantage of the availability of this important mortgage relief program. The community and the industry must do a better job.

1Sec. 4022 of the CARES Act, pg. 569<

2Section 4023 of the CARES Act, pg.570

3https://www.blackknightinc.com/black-knight-number-of-homeowners-in-covid-19-related-forbearance-plans-falls-for-first-time-since-crisis- began-8-9-of-all-mortgages-now-in-forbearance/

4LendingPatterns™ filters include a first or subordinate lien on residential real property (including condominiums and cooperatives) designed for 1-4 families excluding unknown or NA race.

What the Government Sponsored Enterprises (GSE’s) Can Do to Narrow Racial Inequality in the Home Mortgage Lending Market

by Maurice Jourdain-Earl

Fannie Mae and Freddie Mac purchase approximately half of all home mortgages in the U.S. These entities have been in conservatorship since 2008, although a number of proposals for reform have been discussed.  As shown below, the share of conventional loans with Black borrowers eligible for purchase by Fannie and Freddie is significantly lower than the proportion of FHA-insured loans to Black borrowers. Black borrowers disproportionately receive high-cost conventional, and higher-cost FHA loans which the GSE’s do not buy. As discussed elsewhere in this report, these loan type differences drive disparities in the access to credit as well as the cost of credit.

Table A.1 - Over time, FHA has served more than twice the proportion of loans to Black borrowers than the conventional conforming market.

Borrower Race Conventional originations 14-year % Share FHA originations 14-year % Share
White 42,612,709 94.65% 7,248,098 88.05%
Black 2,409,639 5.35% 983,992 11.95%
Total 45,022,348 100.00% 8,232,090 100.00%
Source:  HMDA 2005 - 2018 Conforming 1st lien, owner-occupied, Home Purchase and Refinance Loan Originations
The figure that follows also shows how the proportions of loans made to Black borrowers in the conventional, prime market versus FHA have changed over time.  Conventional prime lending to Black borrowers peaked in the years leading up to the 2008 crisis, and began to increase from around 2011 to 2013.  Since then, the conventional prime share has fallen almost to the levels during the crisis.  Meanwhile, since 2013, the share of FHA loans to Black borrowers has increased.

Figure A.1- In recent years, the proportion of conventional loans to Black borrowers has fallen and the proportion of FHA loans to Black borrowers has increased.

HMDA 2005 - 2018 Conforming 1st lien, owner-occupied, Home Purchase and Refinance Loan Originations
            While the proportion of Black borrowers in the conventional prime market has declined since 2013, the proportion of Black borrowers in the conventional high-cost ‘subprime’ loan market has been increasing during this period.

Figure A.2 - In recent years, the share of high-cost conventional loans to Black borrowers has been on the rise.

HMDA 2005 - 2018 Conforming 1st lien, owner-occupied, Home Purchase and Refinance Loan Originations
From a public policy perspective, there are a number of ways that Fannie and Freddie’s market presence and risk management capabilities could enhance access to credit and homeownership opportunities for Black borrowers.  In addition, the Enterprises should be required to incentivize and support the development of loan products and underwriting guidelines to facilitate homeownership in Black communities.  

The enterprises should be required to monitor approved lenders for their fair lending performance in addition to their capital adequacy and underwriting compliance. The Enterprises are in a position to enforce fair lending and outreach standards using the same mechanisms that are used to ensure compliance with underwriting guidelines. This could be accomplished by adding a race and ethnicity requirement to the Duty to Serve mandate which is currently designated for very low, low, and low-moderate income households.

FHFA and the Enterprises should also provide guidance and oversight in the establishment of standards to assess their diversity policies and practices, as stipulated in Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Unequal Costs of Black Homeownership

by Michelle Aronowitz, Edward L. Golding, & Jung Hyun Choi

Mortgages reach an all-time low, rates now at 3.13%.1  But read the fine print.  That’s for just some borrowers, typically those with at least 20% down with minimum loan size and stellar credit scores.  In fact, there is significant variation in mortgage rates driven by a host of factors, all of which negatively impact African American borrowers.  This section of the report quantifies how much more African Americans pay to be homeowners.  It’s a lot.  The overall differences in mortgage interest payments ($743 per year), mortgage insurance premiums ($550 per year), and property taxes ($390 per year) total $13,464 over the life of the loan, which amounts to $67,320 in lost retirement savings for black homeowners.  These inequities make it impossible for black households to build housing wealth at the same rate as white households.2  The black-white income gap of $25,8003 is exacerbated by this “black tax” on homeownership.  If we eliminate these extra costs paid by African Americans, the $130,000 black-white gap in liquid savings at retirement4 would drop by half.  Our estimates of the extra costs of black homeownership do not include costs due to higher delinquencies and defaults that inevitably flow from higher interest, insurance, and tax payments and hence likely understate the unequal burden placed on black homeowners.5

Although these inequities can be traced to the long history of slavery, segregation, and race discrimination, here we discuss the current policy choices that maintain the disparities and suggest a series of reforms to eliminate them.  Our policy analysis focuses on disparate interest rates and mortgage insurance costs, which can be addressed at the federal level.  We nonetheless point out that nearly a quarter of the disparity in homeownership costs for black homeowners is due to local property tax assessments.  A fair homeownership system must reform these inequitable federal, state, and local policies.

Our conclusions:

Black homeowners pay higher mortgage rates at origination:  Over-pricing for perceived risk factors drives a large portion of the differential cost of homeownership for black households.  Factors targeted most often are LTV, credit score, and loan size.  The policy decision to risk-based price rather than pool risk drives up interest rates for black homeowners and is one reason black homeowners pay about $250 per year more in interest charges, resulting in lost retirement savings of over $11,000.  According to 2018 and 2019 HMDA data, for all loans, the average interest rate for black homeowners was 12 bps higher than for white homeowners.  Note that for the subset of GSE loans, where risk-based pricing is more prevalent, the difference is 20 bps.  We use the 12 bps and the average loan size of $225,000 to compute the costs of risk-based pricing.

Black homeowners continue to pay higher interest rates post-origination due to the lack of refinancing opportunities:  In addition to risk-based pricing, black homeowners pay higher interest rates because they are locked out of refinancing opportunities.  When the Federal Reserve Board acts to lower interest rates, white homeowners benefit to a much greater extent than black homeowners.  We estimate that the lack of refinancing opportunities results in black homeowners paying approximately another $475 per year more than white homeowners, which results in a loss of retirement savings of nearly $20,000.  To compute the $475 differential cost, we use 21 bps as the average interest rate differential between black and white homeowners, and $225,000 for the average loan size.

Of note, the FHA and VA mitigate but do not eliminate these differential effects.  FHA and VA account for approximately half of all home purchase mortgages originated to black homeowners.  Although FHA does not engage in risk-based pricing, some of the private banks that originate FHA mortgages do.  As a result, the average interest rate for black homeowners at the origination of the FHA mortgage, according to 2018 and 2019 HMDA data, was about 6 bps higher than for white homeowners.  For VA mortgages, the differential was similar, at about 7 bps.

Black homeowners pay more in insurance premiums:  In addition to paying higher mortgage rates, black homeowners are more often required to pay insurance premiums, whether for private mortgage insurance or FHA or VA mortgage insurance.  The difference on average between what a black homeowner pays and what a white homeowner pays in mortgage insurance costs is $550 per year, with a resulting loss in retirement savings of over $23,000.

Black homeowners pay higher property taxes:  In addition to the extra costs from higher mortgage interest rates and mortgage insurance premiums, recent research shows that black homeowners pay more in property taxes than similarly situated white homeowners.  Avenancio-Leon and Howard (2020), relying on a national data set, find that black homeowners bear a 13 percent higher property tax burden than white homeowners in the same jurisdiction.  By the authors’ calculation, a black homeowner pays approximately $390 more per year, using a median home value of $207,000.  The authors identify large tax assessment areas and an appeal process that tends to benefit white homeowners as the predominant factors resulting in a higher relative property tax burden on black homeowners.  They suggest that a smaller assessment area, one at the zip-code level, would reduce racial inequality in property tax assessments by at least 55-70%.6

Data analysis:
Black-White Mortgage Rate Disparities

We first calculate the overall interest rate disparities between black and white borrowers, and from there we seek to break out and quantify the component factors that lead to inequitable pricing.  Unfortunately, there is no one publicly available data set from which to calculate mortgage price by race.  HMDA looks at new originations but not the overall stock, so it does not capture disparities over the life of the loan.  The American Housing Survey includes questions about mortgage rates, although it is somewhat limited in that it involves a relatively small sample size, it groups mortgage rates by buckets, and it relies on homeowners’ responses.  It nonetheless allows us to estimate the total distribution of mortgage rates.  Using both HMDA and the AHS, as of the 2017 Survey, we identify that black homeowners pay, on average, 33 bps more on their mortgages compared to white homeowners.

Distribution of Mortgage Rates

Source: 2017 AHS
That may not seem large, but it is.  On average, the mortgage balance for black homeowners is approximately $225,000.  A 33 bps-differential means an extra $743 per year for black homeowners.  If a 40-year-old saved $743 per year for 25 years at 4% interest, at retirement, the homeowner would have an extra $31,000 (which corresponds to $11,600 present value).7

Black-White Mortgage Insurance Cost Disparities

Black homeowners also pay more in mortgage insurance, which is part of the overall cost of the mortgage.  For a conventional mortgage, if the downpayment is less than 20 percent, the lender typically requires the borrower to purchase private mortgage insurance.  FHA and VA act as the insurer of their mortgages and, as such, collect fees and mortgage insurance premiums from the borrower.  These private and government mortgage insurance costs are analogous to the risk premium embedded in risk-priced interest rates. 

The black-white mortgage insurance cost differential nearly doubles the black-white interest rate disparity.  Relying on HMDA data, only 12% of black homeowners do not pay for mortgage insurance, compared to 38% of white homeowners who do not carry such expense, for a gap of 26%.  Private mortgage insurance averages about 75 bps per year, while FHA premiums, including upfront fee, are about 100 bps per year.  VA charges a lesser amount for mortgage insurance than FHA.  This results in black homeowners paying about $550 per year more in private or government mortgage insurance premiums than what white homeowners pay for insurance.  At retirement, that corresponds to about $23,000 in lower savings.

Policy analysis:

What policies drive the disparities in mortgage rates and insurance premiums?

Risk-based mortgage pricing

In today’s housing finance system, risk-based pricing is the norm.  Mortgage rates increase as downpayments and credit scores decrease.  But how to distribute risk—pooled among all borrowers or distributed unevenly among borrowers, is a policy choice.  For historical reasons, black homeowners on average have lower credit scores and lower downpayments and thus are disproportionately disadvantaged by risk-based pricing, and yet, that is the pricing system that predominates today.

In part the risk-based pricing stems from decisions by the Government Sponsored Enterprises (Freddie Mac and Fannie Mae), at the direction of their regulator the Federal Housing Finance Agency (FHFA), to charge lenders a higher fee to guarantee these mortgages.  Typically, that higher guarantee fee (g-fee) takes the form of a loan-level price adjustment (LLPA), which the lender passes on to the subset of borrowers in the form of higher borrower interest rates.  The GSEs charge these LLPAs to cover the perceived higher risk that the mortgage will default.  The measurement of this perceived risk—the size and scope of the LLPA—is embodied in GSE models that set aside reserves or capital to cover a possible repeat of the 2008 Great Recession.  For example, mortgages with only 5% downpayment to a borrower with a 679 credit score are subject to an LLPA of 2.25%,8 which corresponds to about an extra 45 bps in the mortgage interest rate.

These capital standards have the effect of placing the burden of staving off a repeat of the 2008 Great Recession on black homeowners, even though black homeowners were primarily the victims of the crisis, not its cause.  Nevertheless, the financial recovery has black homeowners paying more for their mortgages because of the misdeeds of lenders and the failure of policymakers to stop bad lending and prevent unnecessary foreclosures. 

Alternatively, the pre-2008 policy failures could be pooled, that is, priced uniformly into all mortgages.  (Note this observation has been proposed by Mike Calhoun and Sarah Wolff of the Center for Responsible Lending.9)  Steps to limit or eliminate risk-based pricing could include FHFA not imposing capital buffers on low FICO or high LTV mortgages or, at a minimum, crediting the LLPAs as capital.10  The important point is that risk-based pricing is not required for safe lending but is the result of policy decisions that can be safely reversed while continuing to support a profitable mortgage industry.

In addition to the GSEs, another driver of risk-based pricing is the mortgage originator.  Mortgage originators risk-based price to account for what they believe are the extra costs to them of originating and servicing these mortgages.  FHA, for example, does not risk-based price and the differential mortgage rate for black homeowners taking an FHA mortgage is just 7 bps higher than for white homeowners.  Bartlett et al. (2019) surmise that the GSE process should attenuate lender discrimination because the GSEs take on the credit risk of the mortgage, thereby eliminating the risk reduction benefit of private lenders’ greater use of credit factors beyond the GSE models.11  Indeed, the authors suggest that GSE lenders are not insuring against risk so much as profiting from risk-based pricing; they point out that the rate differential above the GSEs’ credit risk model represents 16% of lenders’ profit per purchase loan and 7% of their profit per refinance loans.12

Prepayment differential

Another source of the interest rate disparity is the respective refinance rates of black and white homeowners.  Black homeowners refinance less frequently than white homeowners.  According to 2019 HMDA data, refinance activity is about 2.5% higher for white homeowners than for black homeowners.  On average, when homeowners refinance, they lower their mortgage rates.  In 2019, the median interest rate of purchase loans was 4.12%, and the median interest rate of refinance loans was 3.88%.  Accordingly, if black homeowners are not refinancing, they are paying more on their mortgage.  While deserving significantly more analysis, it appears that of the 33 bp difference in mortgage rates, about 21 bps can be attributed to differential pre-payment rates.  This is calculated by subtracting from the 33 bps the differential rates for recent originations (HMDA 2018 and 2019) of 12 bps.

Average Interest Rate at Origination: HMDA 2018 & HMDA 2019

  HMDA 2018 HMDA 2019
2018  White 2018  Black 2018  Delta 2019  White 2019  Black 2019  Delta
Conventional 4.78 5.03 0.25 4.29 4.44 0.15
FHA 4.83 4.9 0.07 4.32 4.38 0.06
VA 4.57 4.69 0.12 4.10 4.13 0.03
RHS/FSA 4.71 4.76 0.05 4.14 4.16 0.02
Total 4.77 4.92 0.15 4.26 4.35 0.09
As approximately two-thirds of the overall interest rate differential can be attributed to differential refinancing opportunities, it is important to identify both what drives these differential prepayment rates and whether the prepayment rates are priced into the mortgage upfront, as any fair risk pricing model would do.  After all, there is no additional credit risk added to the economy when a mortgage is refinanced to a lower rate, while there is a significant financial benefit to the lender when the borrower holds the mortgage at above-market rates.

Research points to a host of factors accounting for refinance rate disparities; one of those factors is the higher rejection rates for black applicants.  Barlett et al. (2019) have shown that lenders reject at least 6% of creditworthy black and Latinx applicants.  Between 2009 and 2015, across all lenders, this amounts to a rejection of between 0.74 to 1.3 million creditworthy black and Latinx applications.  Relative to white borrowers, lenders reject black and Latinx borrowers for purchase loans 9.6 percentage points more often and for refinance loans, 7.3 percentage points more often.13

But disparate credit denials are not the only explanation for slower refinance raters.  Other factors include the many credit policies that limit refinancing, which differentially hurt black homeowners.   Many borrowers will be told upfront that they do not qualify because of debt-to-income and/or loan-to-value thresholds, even though they already have a mortgage and are current.  Or past delinquencies will disqualify the refinance.  Yet, the refinance would reduce risk and the mortgage was marketed as fully prepayable. 

Even so, the question remains, why should refinancing less frequently result in higher and not lower mortgage rates?  The work of Woodward (2008), for example, suggests that slower prepayment rates may more than offset higher default rates.14  Nonetheless, there has been a policy decision to price credit risk, but not prepayment risk.  As a result, black homeowners do not benefit to the same extent as white homeowners when the Federal Reserve Board cuts interest rates to support the economy.  At a minimum, to the extent that risk-based pricing continues—and we strongly recommend it not—FHFA and mortgage lenders should incorporate pre-payment rate into their pricing models.

Mortgage insurance

For GSE loans with downpayments of at least 20% of the value of the house, no mortgage insurance is needed.  Otherwise, for FHA and VA mortgages, and for GSE mortgages where the downpayment is less than 20%, the borrower is required to pay mortgage insurance premiums.  It is well documented that downpayments tend to come from relatives.  But black homeowners typically do not have relatives who can provide significant downpayment assistance.15  Moreover, the layering of risk-priced mortgage rates and mortgage insurance fees (another form of risk-pricing), overcharges black homeowners for policy failures that should be more broadly borne.  These policies unfairly charge black homeowners more relative to white homebuyers and relative to risk and need to be replaced with policies that promote more equitable outcomes.

Alternative policies that would greatly reduce the disparate costs borne by black homeowners include tax credits for first-time homeowners, which could be used as a downpayment to reduce the effect of risk-based pricing and the need for mortgage insurance.    Another policy option is to create a government-supported insurance program that makes mortgage payments in the event of unemployment or disability.  Such programs exist in other countries. 

Additional Factors that Unfairly Raise the Cost of Black Homeownership

The above policy choices such as risk-based pricing, the limited availability of downpayment assistance, the questionable need for multiple layers of risk premiums, how we deal with refinancing, and how we assess property tax burden are significant, calculable factors driving the higher cost of homeownership for African Americans.  But there are more. 

Below is a partial list of factors that also contribute to the higher cost of homeownership for black homeowners, all of which should be quantified and eliminated (not necessarily in that order):

  1. Lower appraisals in black communities, leading to higher LTV and thus higher interest rates (in contrast to the higher tax-assessed value for black-owned properties relative to comparable white-owned properties). Research by Perry et. (2018) shows that “[t]he devaluation of majority-black neighborhoods is penalizing homeowners in black neighborhoods by an average of $48,000 per home, amounting to $156 billion in cumulative losses.”16
  2. Less competition among mortgage originators in black communities, leading to higher mortgage prices in those areas17
  3. Steering black homeowners to higher-cost products.18
  4. Higher rejection rates, leading black homeowners not only to miss out on refinance opportunities but to shop less for purchase and refinance mortgages and accept higher interest rates.19
Costs that flow from these and other inequitable practices drive some of the higher interest rates and mortgage insurance costs discussed above and result in the higher cost of homeownership.


Over $50,000 of the wealth differential at retirement can be attributed just to the fact that black homeowners pay more for homeownership due to higher mortgage rates and greater mortgage insurance premiums.  This amount does not account for the wealth differential due to higher residential property taxes paid by black homeowners.  The policy response should not be to try to justify the differential but to eliminate it.  This paper outlines and sizes the various components of the differential cost of homeownership, while suggesting policy alternatives to reduce and/or eliminate the disparities.  While more research is always helpful, we know enough to make substantial improvements now.


1 Jeff Rose, “Mortgage Rates Reach Record Lows – Is Now The Right Time To Buy A House?,” Forbes, July 7, 2020, https://www.forbes.com/sites/jrose/2020/07/07/mortgage-rates-reach-record-lows--is-now-the-right-time-to-buy-a-house/#6965817d3de7.

2 As used in this section, “black” and “African American” refer to the HMDA category “black or African American” used to track mortgage data; “white” refers to the HMDA category “NonHispanic white” used to track mortgage data.

3 “2020 State of Housing in Black America,” supra Figure 1.9, page 21.

4s Urban Institute. Nine Charts about Wealth Inequality in America (Updated). Chart 7: “Black and Hispanic families have less in liquid retirement savings,” Oct. 5, 2017, https://apps.urban.org/features/wealth-inequality-charts/chart 7.

5 Bayer, Patrick, Fernando Ferreira, Stephen L. Ross. 2016. “What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders.” Economic Research Initiatives at Duke Working Paper Series, https://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/13241/SSRN-id2730894.pdf?sequence=1.

6 Avenancio-León, Carlos, Troup Howard. 2020. “The Assessment Gap: Racial Inequalities in Property Taxation.” Washington Center for Equitable Growth, https://equitablegrowth.org/working-papers/the-assessment-gap-racial-inequalities-in-property-taxation/.

7 Although our data does not consider payment of points, research has shown that for GSE mortgages, whether points are paid only modestly impacts price discrimination for black and Latinx homeowners.  See Bartlett, Robert, Adair Morse, Richard Stanton, and Nancy Wallace. 2019. “Consumer-Lending Discrimination in the FinTech Era” 23-24. Haas School of Business at U.C. Berkeley, http://faculty.haas.berkeley.edu/morse/research/papers/discrim.pdf?_ga=2.22372220.679975626.1594361012-57417667.1594361012.

8 Fannie Mae, Loan-Level Price Adjustment (LLPA) Matrix, Table 1, Aug. 12, 2020, https://singlefamily.fanniemae.com/media/9391/display.

9 Calhoun, Mike and Sarah Wolff. 2016. “Who Will Receive Home Loans, and How Much Will They Pay?” Urban Institute, https://www.urban.org/policy-centers/housing-finance-policy-center/projects/housing-finance-reform-incubator/mike-calhoun-and-sarah-wolff-who-will-receive-home-loans-and-how-much-will-they-pay.

10 Goodman, Laurie, Ellen Seidman, Jim Parrott, and Jun Zhu. 2014. “Guarantee Fees - An Art, Not a Science.” Urban Institute, https://www.urban.org/research/publication/guarantee-fees-art-not-science.

11 Bartlett, Robert, Adair Morse, Richard Stanton, Nancy Wallace. 2019. “Consumer-Lending Discrimination in the FinTech Era” 30. Haas School of Business at U.C. Berkeley, http://faculty.haas.berkeley.edu/morse/research/papers/discrim.pdf?_ga=2.22372220.679975626.1594361012-57417667.1594361012.

12 Bartlett, Robert, Adair Morse, Richard Stanton, Nancy Wallace. 2019. “Consumer-Lending Discrimination in the FinTech Era” 19. Haas School of Business at U.C. Berkeley, http://faculty.haas.berkeley.edu/morse/research/papers/discrim.pdf?_ga=2.22372220.679975626.1594361012-57417667.1594361012,

13 Bartlett, Robert, Adair Morse, Richard Stanton, Nancy Wallace. 2019. “Consumer-Lending Discrimination in the FinTech Era” 29. Haas School of Business at U.C. Berkeley, http://faculty.haas.berkeley.edu/morse/research/papers/discrim.pdf?_ga=2.22372220.679975626.1594361012-57417667.1594361012.

14 Woodward, Susan E. 2008. “A Study of Closing Costs for FHA Mortgages.” Department of Housing and Urban Development and Urban Institute, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1341045.

15 Dana Anderson, “Redlining’s Legacy of Inequality: $212,000 Less Home Equity, Low Homeownership Rates For Black Families,” Redfin, June 11, 2020, https://www.redfin.com/blog/redlining-real-estate-racial-wealth-gap/.

16 Perry, Andre, Jonathan Rothwell, and David Harshbarger. 2018. “The devaluation of assets in black neighborhoods: The case of residential property.” The Metropolitan Policy Program at Brookings, https://www.brookings.edu/wp-content/uploads/2018/11/2018.11_Brookings-Metro_Devaluation-Assets-Black-Neighborhoods_final.pdf; see, e.g., Debra Kamin, “Black Homeowners Face Discrimination in Appraisals,” New York Times, Aug. 25, 2020, https://www.nytimes.com/2020/08/25/realestate/blacks-minorities-appraisals-discrimination.html.

17 Bayer, Patrick, Fernando Ferreira, and Stephen L. Ross. 2016. “What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders.” Economic Research Initiatives at Duke Working Paper Series, https://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/13241/SSRN-id2730894.pdf?sequence=1.

18teil, Justin P., Len Albright, Jacob S. Rugh, and Douglas S. Massey. 2018. “The Social Structure of Mortgage Discrimination.” Housing Studies33 (5): 759–76, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6084476/; Hanson, Andrew, Zackary Hawley, and Hal Martin. 2017. “Does Differential Treatment Translate to Differential Outcomes for Minority Borrowers? Evidence from Matching a Field Experiment to Loan-Level Data.” Federal Reserve Bank of Cleveland, Working Paper no. 17-03. https://doi.org/10.26509/frbc-wp-201703.

19 Bartlett, Robert, Adair Morse, Richard Stanton, Nancy Wallace. 2019. “Consumer-Lending Discrimination in the FinTech Era” 6. Haas School of Business at U.C. Berkeley, http://faculty.haas.berkeley.edu/morse/research/papers/discrim.pdf?_ga=2.22372220.679975626.1594361012-57417667.1594361012.