‘Troubling’ data show Black and Hispanic homebuyers were more likely to be denied loans

A low supply of homes for sale, elevated mortgage interest rates, and rising home prices kept people in the Philadelphia area from buying homes in 2023. But among those who did apply for mortgages, racial disparities in who got approved persisted, despite researchers calling more attention to the issue in recent years.

In Philadelphia in 2023, lenders denied Black, non-Hispanic and Hispanic mortgage applicants who were well-qualified for mortgages more often than they denied white, non-Hispanic applicants who were similarly or less qualified, according to a Reinvestment Fund analysis of 2023 data released through the Home Mortgage Disclosure Act.

Borrowers were considered “well-qualified” if they had less debt and made higher down payments.

Ira Goldstein, senior adviser for policy solutions at Reinvestment Fund, said that efforts such as housing counseling and first-time homebuyer programs have helped reduce disparities in mortgage lending, and differences in denial rates have improved over the decades. The Philadelphia-based community investment nonprofit analyzes federal mortgage data each year.

But lending disparities have been persistent, and “that I still find troubling,” Goldstein said.

Here are some takeaways from Reinvestment Fund’s report analyzing the latest federal mortgage data.

Lenders are more likely to deny Black and Hispanic applicants than white applicants regardless of how well-qualified they are. In Philadelphia and cities throughout the country, white, non-Hispanic applicants who were less well-qualified in 2023 were denied less often than more highly qualified Black and Hispanic applicants.

In Philadelphia, the denial rate for white, non-Hispanic applicants who were considered less well-qualified was 7.5%. The denial rate for Black, non-Hispanic applicants who were well-qualified was 14.3%.

In 2023, lenders denied 7.5% of conventional mortgage applicants in Philadelphia.

Lenders were about twice as likely to deny Black, non-Hispanic applicants and Hispanic applicants than white, non-Hispanic applicants.

“In earlier times, it was triple, but double’s not good either,” Goldstein said. “It is troubling that these differences exist.”

Roughly 11% of Black, non-Hispanic applicants and 9% of Hispanic applicants were denied conventional loans. Almost 5% of white applicants were denied.

Rates of denials by race and ethnicity in the suburbs were similar but slightly higher.

Homebuyers applying for government-insured mortgages, such as those backed by the Federal Housing Administration and the U.S. Department of Veterans Affairs, were more likely to be denied than those seeking conventional loans. FHA loans can help those with less savings and lower credit scores buy homes, including first-time buyers, racial groups traditionally underserved in the conventional market, and people with low to moderate incomes.

Denial rates in Philadelphia are higher for government-insured mortgages than for conventional loans, and disparities persist. Almost 14% of Black applicants were denied government-insured loans. About 11% of Hispanic applicants were denied. And among white, non-Hispanic applicants, more than 7% were denied.

Areas of Philadelphia that are predominately Black, non-Hispanic or Hispanic and/or areas where incomes are lower have higher rates of denials for both government-insured and conventional mortgages.

In Philadelphia and surrounding counties, the number of loans homebuyers applied for and the number of loans created continued to fall in 2023 from highs reached in 2021.

But suburban counties had more loan applications and more loans created per 100 households than Philadelphia, continuing a trend.

Reinvestment Fund defined the suburbs as Bucks, Chester, Delaware, and Montgomery Counties in Pennsylvania and Burlington, Camden, and Gloucester Counties in New Jersey.

Unsurprisingly, not a lot of people refinanced their home loans in 2023 because many homeowners had lower mortgage interest rates than they would get if they refinanced.

Average rates for the popular 30-year, fixed-rate mortgage nearly hit 7.8% toward the end of the year, according to the government-backed mortgage buyer Freddie Mac. Refinances have dropped sharply since 2021, when average rates were around or below 3%.