In Baltimore, Race Is The Deciding Factor In Mortgage Lending

In Baltimore, Race Is The Deciding Factor In Mortgage Lending

Tyler Durden’s pictureSubmitted by Tyler Durden on 11/17/2015 18:35 -0500

In many ways, the riots that left parts of Baltimore smoldering in late April were the culmination of 9 months of worsening race relations in the US.

The death of Eric Garner, the unrest in Ferguson, and the shooting of Walter Scott all served to create a palpable sense of distrust between African Americans and white police officers and when Freddie Gray died, the stage was set for a night of anarchy in the streets. A “purge” as it were.

In the wake of the riots, some were quick to point out that while much of what took place on the night of April 27 is inexcusable regardless of any mitigating socioeconomic factors, the anger and frustration in some predominantly African American communities emanates from a lack of opportunity. Put simply, social mobility for some minorities is severely constrained by myriad hurdles that in many cases prove to be all but insurmountable. That’s not an attempt to excuse antisocial behavior, and it’s certainly not to say that those who possess an iron will and uncanny resolve can’t succeed despite all odds, it’s simply to say that “equality of opportunity” doesn’t exist in America. Plain and simple.

Recall that back in May, The New York Times (drawing on research from Harvard economists Raj Chetty and Nathaniel Hendren) took a look at income mobility and, by extension, the best and worst places to live in America.

Here’s how we described the study at the time: The goal of the study (and its predecessors) is to determine the most effective way to imporove economic outcomes for low-income children. Here, the researchers “focus on families who moved across areas to study how neighborhoods affect upward mobility.” Unsurprisingly, Chetty and Hendren “find that every year of exposure to a better environment improves a child’s chances of success.”

Here are some screenshots from the interactive map presented by The Times which should tell you all you need to know about social/ income mobility and Baltimore:

In this context, we present a few excerpts from a New York Times piece out Monday which takes a look at a new study by the National Community Reinvestment Coalition who looked at mortgage lending in Baltimore.

Perhaps not surprisingly, the Coalition found that the most important determinate for loans was the racial composition of the neighborhood. Not income. Not credt. But race.

Here’s more:

The black population of Baltimore is double that of the white population. Yet in 2013, banks made more than twice as many mortgage loans to whites in the city as they did to blacks.

The stark difference in mortgage lending, derived from the most recent government mortgage data, is the focus of a new study that will be released on Tuesday by the National Community Reinvestment Coalition, a consumer advocacy group.

Still, the coalition says its analysis shows that the racial makeup of a neighborhood — and not income, for instance — is the most significant predictor of whether a loan gets made in Baltimore.

“If lenders are not making loans in a community, the opportunities for people to work their way out of poverty is pretty slim,” said John Taylor, the coalition’s president. “In Baltimore, the prevailing factor behind who gets a mortgage is the racial composition of the neighborhood.”

As The Times notes, “it has long been the case that the rate at which blacks get denied a mortgage is higher than that for whites” and indeed, there appear to be legitimate reasons for this. “According to the Fed’s analysis of the government mortgage data from 2013, banks said credit history was the reason behind 30 percent of their denials of black borrowers. For whites, banks said it was the cause in 22.5 percent of the cases,” NYT adds.

But that’s not what’s going on in Baltimore.

First, here are the raw numbers (which should themselves give you pause even if you’re skeptical about the study itself):

In 2013, 797 loans were made to blacks in the city, a seemingly tiny number considering that Baltimore’s black population totals almost 400,000. Some 2,000 loans were made to the city’s 175,000 whites.

Here’s where it gets bad:

In lower-income areas of Baltimore where minorities made up 10 to 19 percent of the population, 72 percent of mortgage applications were approved. But in lower-income areas where minorities made up more than 80 percent of the population, only 59 percent of applicants were approved.

So we’re talking about low-income borrowers in both cases. In other words, t’s not about the borrowers’ ability to service the debt. Banks simply don’t want you buying houses in black neighborhoods. It looks to be as simple as that.

Incredibly, the numbers are even worse for high-income borrowers:

Higher-income borrowers in Baltimore were approved for 64 percent of the loans they applied for in areas where the minority population exceeded 80 percent. But the approval rate was 82 percent for higher-income borrowers in areas where minorities made up less than 10 percent of the population.

In other words, even if you make a lot of money, the bank is far less likely to give you a loan for a house in a black neighborhood in Baltimore.

Now admittedly, banks are likely just protecting their interests. That is, you don’t want to end up sitting on a book full of loans you made for homes that you think are likely to fall in value.

But bear in mind that you can’t have it both ways. You can’t say, “ok take some initiative, work, build credit, buy a home, and do your part to lift your community out of the proverbial gutter”, and then at the same time say “well, then again, we can’t give you a loan because your neighborhood is mostly black.” That won’t work and will only serve to perpetuate the status quo. Here’s The Times again:

One of the chief concerns among consumer advocates is that banks have effectively written off certain neighborhoods. Lenders, for instance, may shun creditworthy borrowers in neighborhoods where blacks are the majority because they may not believe that house prices will rise by much in such areas. But if banks avoid economically challenged areas for that reason, it could make it more unlikely that house prices will rise.

As always, we’re not taking one side or the other, but what the above does underscore is the fact that changing the circumstances which contribute (note we did not say “cause” we said “contribute”) to the types of social unrest we witnessed last April can be exceptionally difficult when the deck is stacked.

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