For years, discriminatory lending practices have prevented black mortgage applicants from venturing into their own home ownership. Since the 1930s, lenders have openly discriminated against people of skin color, and actions such as the red line (marking certain areas as predominantly black and then denying mortgages to borrowers in those areas) have never been sanctioned.
The problem was so serious that as part of his campaign, Joe Biden pledged to take steps to hold financial institutions accountable for discriminatory practices when it comes to mortgage credit lending…
According to the US Census Bureau, nearly 74% of white families own their own homes. In comparison, only 45% of black families are property owners. This discrepancy helps explain why black families only have about one-eighth of the net wealth of white families (since owning a home is a good way to increase a family’s net worth).
But one trend in the mortgage industry may, surprisingly, help solve a long-standing problem of discrimination in lending.
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Online lenders flatten the market
As with many other industries, the mortgage lending industry has moved more and more online in recent years. Just as it is banks that do not have regular offices, there are mortgage lenders who operate exclusively on the Internet.
Online lending is a convenient way to complete transactions. But it can also help narrow the gap in home ownership between white and black households. It is often said that black borrowers, even if they are approved for a home loan, often receive less favorable terms. mortgage rates than white borrowers. The same is with Latin American borrowers. But recent analysis found that among online mortgage lenders, black, Hispanic, and white borrowers receive nearly identical borrowing conditions upon approval for a home loan.
Equally important, online lenders are increasing borrowing and competition. This, in turn, gives black borrowers more opportunities to get mortgage approval.
There is work to be done
Zillow’s research shows that the cost of housing for black households has grown at a faster rate since 2014, and since then, the share of households has also grown faster for black and Hispanic households. This is certainly good news, and the growing availability of online mortgages may have contributed to the last point. But this does not mean that the problem of discrimination in lending has been resolved.
As President Biden moves forward with his housing plans, we can hope that additional steps will be taken to make lending practices more equitable overall. Owning a home can open the door to greater financial stability. Houses are an asset that tends to rise in value over time, and their equity capital (the portion that is directly owned by the owners) can be leveraged for additional financial flexibility. And all potential buyers must have equal funding opportunities.