Posted on July 3, 2021

America’s Housing Market Is Racist. Congress Could Easily Help Fix It if They Wanted To.

Skylar Baker-Jordan, Business Insider, June 27, 2021

In 2020, Black borrowers were 80% more likely to be denied a mortgage than white borrowers. While this statistic is jarring, it is hardly surprising to those of us familiar with the US mortgage industry. A holistic look at America’s housing market shows that it disadvantages people of color in some startling and systemic ways that are not always obvious at the loan level.

The Fair Lending for All Act aims to change that. Introduced by Congressman Al Green, a Democrat from Texas, the bill clarifies the language of the Equal Credit Opportunity Act (ECOA) to better address systemic discrimination in mortgage lending. At the same time, it establishes a new bureau within the Consumer Financial Protection Bureau (CFPB) to test whether lenders are following federal guidelines as set out in the Home Mortgage Disclosure Act (HMDA) and ECOA. While seemingly obscure and legalistic, the Fair Lending for All Act will go a long way to making mortgage lending fairer and ending racial disparities in home ownership.


{snip} The Black homeownership rate has increased only 4% over the past five decades. Meanwhile, the gap in homeownership between white and Black Americans was 5% lower in 1920 than it was in 2020.

This problem is then compounded by further economic inequalities Black Americans face. A recent study from the McKinsey Global Institute found that Black Americans make on average 30% less than white Americans. A disproportionate number of Black Americans have student loan debt, representing 13.4% of the population but nearly a quarter of all student loan debt incurred in 2019. Black borrowers also inherit less and receive fewer financial gifts from family members than do white Americans.

Debt-to-income and loan-to-value ratios have been higher for Black and Latino Americans. Data from the Federal Reserve shows that the median Black family has less than 15% the wealth of the median white family. What this means in practical terms is that Black and Latino borrowers have a higher amount of debt relative to their income. They, in turn, must borrow more on their homes, having less of a down payment to put towards the purchase.

Many lenders and underwriters will argue that there is no inherent racism here. If you qualify, you qualify, and if you don’t, you don’t. {snip}

There are three types of discrimination which ECOA forbids: overt discrimination, comparative discrimination, and disparate impact. Overt discrimination is when a lender blatantly treats an applicant differently based on a protected characteristic, such as race or sex. Comparative discrimination results from “differences in treatment that are not fully explained by legitimate nondiscriminatory factors,” according to the Federal Reserve. The last type of discrimination, disparate impact, “occurs when a lender applies a racially (or otherwise) neutral policy or practice equally to all credit applicants but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis.”

{snip} Some financial institutions may have policies which take into consideration a borrower’s census tract or zip code, which, due to racist practices like redlining, can have a discriminatory effect. This is one of the practices the Fair Lending for All Act hopes to curtail, making it clear that it is unlawful to discriminate based on census tract or zip code.


These realities make ensuring lending is fair and unbiased a top priority for the federal government and lenders alike. An agency tasked with looking at the problem from a bird’s eye view – and therefore able to get a fuller picture of the situation – is needed. For these reasons, I am so encouraged by the Fair Lending for All Act. This bill establishes within the CFPB an Office of Fair Lending Testing. Charged with ensuring these disparities disappear, the Office of Fair Lending Testing would utilize what essentially amounts to “secret shoppers” to assess whether lenders are complying with ECOA and all other applicable antidiscrimination laws.