Oct. 2015 - Diversified We Stand, Divided We Fall

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TH E M R EP O RT | 29 FEATURE I n today's society, people of all races and ethnicities are able to receive the same education, employment options, and opportunity to access healthcare. Segregation is virtually abolished with respect to almost every facet of the American dream, except for one. Whether unintentionally or intentional in nature, there is a great divide and disparity in the statistics between minority and white borrowers in the mortgage market. There is scant evidence that overt discriminatory practices are happening amidst America's mortgage lenders. However, there are also common factors among minority groups that reflect higher rates of denial or approval for higher cost mortgages. Recent demographic studies have shown that the factors leading to the large disparity in homeownership. Demographics of Housing and Mortgage Loans Z illow and the National Urban League conducted a study in January 2014 that examined minority access to housing and outlined the dif- ferent experiences among races in the home purchase process, specifically focusing on four factors: annual housing income by race, down payment size as a proportion of the total home price, racial composition of con- ventional mortgage application processes, and mortgage denial rates. Titled A House Divided: How Race Colors the Path to Homeowner- ship, the study found: » » The annual housing income of borrowers factor indicated that generally minorities have lower income levels, causing them to forgo saving funds in order to allot a greater share of earnings on living and essential ex- penses. This method potentially is a factor that makes it more difficult for them to build the savings needed to apply for a mortgage. » » Next, the study examined the down payment size as a proportion of the total home price, which also correlates with annual household income. It was found that 44 percent of black Americans are likely to put 5 percent or less as a down payment, as compared to white Americans and Hispanics at 27 percent and 29 percent respec- tively. The amount an individ- ual is likely to put down, not surprisingly, is correlated with their average household income. » » The third topic of focus re- vealed the racial composition of conventional mortgage applica- tions processed. Hispanics, who make up 17.3 percent of the population, and blacks, who consist of approximately 12.1 percent of the U.S. population, were much less likely to apply for a mortgage to purchase a home. Specifically, only 2.9 percent of all conventional mortgage applicants were black and only 5.4 percent of conven- tional mortgage applicants were Hispanic. Conversely, whites, who make up 69.8 percent of the population, accounted for 69.8 percent of all conventional mortgage applications at the time. » » The study's review of mortgage denial rates based upon race found that minorities were much more likely to have their applications denied. When compared with white appli- cants, blacks were 2.4 times more likely to be denied for a mortgage, and Hispanics were 1.98 times more likely to be denied. Factors Attributing to the Exclusion of Minorities T he reasons for the exclusion and disparities that mi- norities face include inadvertent discrimination, as well as the theory of a "dual market" as proposed by Kenneth Cooper in the article Study Shows Mort- gage Lending to Minorities Drops Significantly as Fewer People of Color Purchase Homes. This theory sets forth that there are two paths traveled by Americans seeking mortgages: one path followed by The Two Faces of the American Dream Whether intentional or not, the divide between minority and white borrowers continues to grow. By Debbie Hoffman and Dr. Rick Roque

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