A recent report from the Federal Reserve Bank of Minneapolis says the denial rate for home loans is higher for people of color than it is for white people in the Twin Cities, even when accounting for financial differences and property characteristics. The starkest gap was between Black and white applicants, with 4.3 percent of Black applicants denied, compared to 1.7 percent of white applicants.
The research offers new insight into the racial home ownership gap in Minnesota, which has persistently been one of the largest in the country.
MPR News host Tom Crann spoke with Alene Tchourumoff, senior vice president of community development and engagement at the Minneapolis Fed, for more on the findings.
Hear the full conversation by using the audio player above or reading the transcript below. It has been lightly edited for clarity and length.
Give us an overview: What did you look at, for how long, and where?
We really wanted to look specifically at disparities in mortgage lending, and so we decided to look at mortgage denials.
We found that in the seven-county Twin Cities area, mortgage applicants of color are more likely than their white peers to receive denials for the most common type of home purchase loan, the 30-year conventional loan.
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We found that these denials persist even after accounting for credit scores and other detailed application characteristics.
Is there, at any point, racial identification in any of the applications or is that all anonymized?
Many home mortgages are originated online at this point. You may never actually meet your lender and the people who are doing the origination work behind the scenes.
So it does point to maybe something happening in the process or something happening in the way that people appear on paper that's different from what you might have expected 20, 30 years ago when you actually walk into a bank and sit down in front of somebody.
I want to be clear here about lenders. If lenders were deliberately doing this or using race as a reason to decline alone, is that illegal?
And what's happening here, you're saying, is different than that but has a similar result?
What I'm saying is that we can see that, at the aggregate, even though we have credit scores, we have other really specific, more detailed application information about the borrowers, we still see differences in the rates of denials.
So what do we know about why these gaps exist?
I think that's one of the things that we want to dig into a bit more. I think that in our region we have one of the largest homeownership gaps in the country between Black and white home homeowners — and that really hasn't changed over the last 20, 30 years.
But this research that we've done that's focusing on the Twin Cities is actually part of a national study that we've also done. And we find that these disparities actually persist across the country.
We do have slightly larger gaps, larger denial rates in the Twin Cities for Black, Latino and Asian applicants, but it's something that exists everywhere.
What's the next piece of the puzzle you'd like to know more here?
I think this helped us understand and be able to clarify that people are [being denied] with comparable credit scores and with comparable loan-to-value ratios — and [this is happening] across the country. So, it's not just certain banks, it's not particular geographies that are driving these differences.
But I think, of course, there are more questions beyond that: Are there other things like wealth or employment history? How does a person appear if they're more likely to have what we would call a gig worker? Does that influence some of these outcomes as well?
So in the end, why is it important for the Minneapolis Federal Reserve Bank to know this information?
I think the housing market is an important component in terms of the role that it plays in the economy. But it's also an important factor in a family's ability to generate wealth over time.
We at the Minneapolis Fed, and around the country, we know that housing is a critical part of the policy conversation in our region, but also really specifically here in the Twin Cities market.