A new study released by Zillow shows that a consumer’s ethnic background does have a bit of a relation to their chances of securing a mortgage loan.
According to Zillow’s data, 27.6 percent of African-American applicants for conventional mortgages were denied in 2013, while 21.9 percent of Hispanics were not able to qualify. Caucasian applicants, on the other hand, were only rejected at a rate 10.4 percent. However, ethnicity is far from the only variable affecting one’s chances of qualifying for a mortgage, as shown on Zillow’s data. “We’re not saying causality here; we’re saying a lot of different factors are correlated with each other,” said Zillow senior economist Skylar Olsen. “There’s a lot of metrics and economic variables that we can look at to highlight inequality and they all reinforce each other. And I think that’s one of the things that makes this problem so hard to fix.”
When evaluating the chances of a person qualifying for a mortgage, financial institutions take several things into account. For one, there is the matter of pay slips, tax forms, social assistance documents, and other forms of documentation that must be furnished as part of a mortgage application. These deliverables are typically required for mortgage applicants, and they can play a large role when trying to determine the chances of qualifying for a mortgage.
Olsen believes it may be poor record keeping practices, which she partly blames on a lack of educational access and/or achievement, that may be a bigger factor than race.
“All of it is related and linked together. It’s going to be harder to get a mortgage if you can’t document your income,” Olsen added, further going into detail about how black and Latin American households were among the most affected by the Great Recession. “Generally, lower-income communities and households suffered a lot in the housing recession since a lot of them went into credit card debt, (which is) a big hit to your credit scores. Black and Hispanic households are also lower-income households, on average. It’s correlated to have higher credit card debt, worse FICO scores, worse credit scenarios.”
Zillow’s data indicates that white consumers had a considerably higher median household income than other ethnic groups, with a median figure of $58,000. Hispanics earned substantially less at $42,000, followed by blacks at $35,000. Asian households earned highest median income per year at $72,000. In addition, Olsen also pointed out the lack of access to mortgage credit in black and Hispanic communities in the United States.
In terms of economic recovery, Zillow revealed that Southern states typically had slower recovery rates than states located in the North. Olsen, in addition, stated that there may have been other regional variables, as opposed to racial variables, coming into play, even as some of the worst-hit real estate markets during the global recession had high percentages of black and Hispanic consumers.
Among those variables she mentioned included, but were not limited to lower income, lower levels of education, higher unemployment, and the high prevalence of shady borrowing practices. Olsen said that lower-educated, lower-income consumers were prime targets for “subprime lending, aggressive excess lending, no-doc loans, (and) ninja loans,” and also noted that one foreclosure had the potential of creating a ripple effect, with one foreclosure “(impacting) your neighbor’s house” and making it harder for them to sell.