Another Deceptive Article about Mortgage Discrimination

by James A. Bacon

Oh, brother, here we go again… Of the 14,700 mortgage applications submitted by black Virginians last year, 11.9% were turned down, reports the Virginia Mercury. By contrast, of the 70,400 applications from non-Hispanic whites, only 5% were rejected. The difference in acceptance rates cannot be attributed solely to differences in income, says the online publication. Racial disparities in loan denial rates exist at almost every income level.

The Mercury article does not state explicitly that the gap in rejection rates is attributable to racism, bias or discrimination, but it frames the issue as if it is. The article provides this assessment from Alex Guzmán, director of fair housing for the nonprofit group Housing Opportunities Made Equal of Virginia:

In light of the protests triggered by the death of George Floyd under the knee of a Minneapolis police officer, the latest [Home Mortgage Disclosure Act] numbers take on added meaning because “homeownership is probably the most powerful way to rectify the racial wealth gap.”

And this from Bruce Whitehurst, president of the Virginia Bankers Association:

Speaking for myself as a non-Hispanic White, we have to think a lot more about why the differences are there. I just think we’re at this place where we need to address the structural issues. And I think it’s fair for anyone in the Black community to say, ‘What took you so long to figure out what we’ve known for a long time?’”

As always with racial disparities = racial discrimination stories, there is a lot less to these numbers than meets the eye. Indeed, if there is a guilty party involved, it is the media, in this case the Virginia Mercury, which cherry picks data to push a  left-wing Oppression Narrative that can serve only to inflame African-Americans’ sense of grievance and victimhood, and, thereby, discourage blacks from seeking mortgage financing!

First, there’s the old trick of presenting the cherry-picked data in a way that casts the U.S. banking industry in the least favorable light: 11.9% of blacks were rejected compared to only 5% of whites. By that reckoning, blacks were rejected at twice the rate of whites! A more optimistic way of framing the narrative would note that 89.1% of blacks’ mortgage loan applications were accepted, which was 94% of the rate (95%) at which whites’ loans were accepted.

But there’s a much bigger flaw in the article’s reasoning. Income is not the primary factor banks look at when approving mortgage loans. Here are the factors listed by

  • The size of your down payment. Industry standards say that homebuyers applying for conventional mortgages should put down at least 20% of the loan amount. A higher down payment reduces risks for the lender and increases the odds of acceptance.
  • Credit history. Mortgage lenders often look at FICO credit scores as an indicator of how well borrowers manages their money and the likelihood that they will repay a loan.
  • Work history. Mortgage lenders look at applicants’ employment histories. Demonstrating steady employment and sources of income will improve an applicant’s chances of being approved.
  • Debt-to-income ratio. Lenders want to know how much student loan debt, credit card debt, and other debts a borrower has. Lenders tend to avoid lending money to applicants with DITs above 43%. “That’s because lenders want to ensure that borrowers can make all of their monthly payments without overextending themselves.”
  • The type of loan. There are many kinds of loans. Some loans are bigger, some smaller. Some have 15-year amortizations, others have 30-years. Some are fixed, some are variable. Each type of loan has a different risk profile.

Comparing mortgage acceptance rates of different racial/ethnic groups without accounting for the size of loans, the size of down payments, credit history, debt-to-income ratios, and the type of loans is a meaningless exercise. Adjusting acceptance rates for income is likewise a meaningless exercise. Insinuating the existence of structural racism by citing differences in mortgage-rejection rates between whites and blacks without adjusting for those factors is reckless and irresponsible.

There is one more reason why this article fails abysmally to support the Oppression Narrative. The author posits no mechanism by which the implied discrimination takes place. An increasing percentage loan originations now are approved over the phone or online, not in face-to-face meetings in which an applicant’s race can be identified. There’s an old joke of a dog sitting behind a computer and talking to a canine friend, who says, “The best thing about the Internet is that nobody knows I’m a dog.” Perhaps it can also be said that on the Internet, nobody knows if an applicant is black, brown or white.

There is a narrative that says the algorithms replacing face-to-face meetings do discriminate — but not in the form of mortgage acceptance rates. According to a 2019 Berkeley study, algorithmic lenders charge minorities higher mortgage rates — 5.3 basis points more in interest for purchase mortgages and 2.0 basis points for refinance mortgages originated on FinTech platforms — but its findings “show no discrimination in rejection rates.”

Moreover, the discrimination in lending rates is inadvertent. “Lenders may be able to extract monopoly rents from minority borrowers because such borrowers might be prone to less shopping on average.”

As Samuel Clemens famously said, there are lies, damn lies and statistics. You can decide for yourself which label best applies to this particular.

P.S. Note to the Virginia Bankers Association. Find a spokesman who can do a better job defending your industry.

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34 responses to “Another Deceptive Article about Mortgage Discrimination

  1. Great column. As if the financial crash of 2008 never occurred. You know, the one in which black Americans lost most of their wealth because they were encouraged to purchase homes they couldn’t afford.

    Your reversal of the data – looking at approvals instead of denials – should be the centerpiece of the Virginia Bankers Association response. It would be great to ask Mr. Guzman how the structural impediments allowed 90% of black mortgage applications to be accepted.

    Whenever someone refers to the ‘structural’ or ‘systemic’ issues, I’d like to know the specifics of the structure or system at issue. Better yet, identify the people who are making the discriminatory decisions in those structures or systems. These abstractions are used in place of defining a problem in a way that can be solved. Or to ignore the solutions that have already been put in place.

    • “As if the financial crash of 2008 never occurred. You know, the one in which black Americans lost most of their wealth because they were encouraged to purchase homes they couldn’t afford.”

      Excellent point. The 2008 crash was the greatest setback to African-Americans’ wealth accumulation since… perhaps in U.S. history. In that case, the banking industry was pressured by activist groups to abandon long-held standards of financial prudence.

      • Really, the banking industry was “pressured” by activist groups into providing those loans that lead to the crash? The only activists that had influence were the lobbyists for the financial industry who succeeded in deregulating the industry. They were not pushed into approving subprime loans and interest-only mortgages. They rushed in themselves, creating a whole catalog of financial instruments. The mortgages were sold to hedge funds that used them to create derivatives, collateralized debt obligations, and other instruments. These were then securitized and sold to investors who had little information on the value of the subprime mortgages in those bundles.

      • The American financial system is insane, and irrational behavior is just a rational response to insanity.

        20 years ago, I went to buy a house. I was just going to pay cash. My financial advisor told me I was crazy. “Get a mortgage! A small one will do. You have no debt, 2 credit cards, $0 balance. You’ll trash your credit rating.”

        He was right. I’d have paid far more for insurance, taxes, and just about everything if I hadn’t taken a small mortgage. He is still right. Even today, Experian keeps telling me that my debt load is too low even while they tell me I have an 840 FICO score. What, 850 is max?

        TV ads, and a very prominent button on my Experian login page, keep urging me, “Use Experian Boost!” For what? 10 points? And what the Hell is it?

        Think about that. A TV ad says, “hit a button on your cellphone, kids, and boost your credit rating so you can get a bigger mortgage!” That’s insane!

        The entire system is built, and all the laws are written to support a system that is built, on debt and credit.

        You’d better address Dick’s comments and the facts that he dropped on your doorstep for the 2008 crash before you even half mention low-income borrowing as anything like a reason for 2008.

      • Dick, you are way off base again. Your government was culprit yet again.

        Private enterprise is no more moral that government. Out of control experts can be found in abundance everywhere. They work for governments and private enterprise too. Indeed many private enterprise experts work for government for lots of money. And the successful one all have learned “how to work the system”.
        And the survivors are the ones who have best learned how to win low bids. Then turn those low bids into maximum profits.

        But certain realities acerbate our current expert overreach. For example, you raised a circumstance I earlier raised in my fourth comment to Jim’s article. Your question was “did someone say something about the non-govt investment rating agencies that told the non-govt Banks that sub-prime MBS were “prime” investment grade securities?”

        Yes, I did. I raised the rating agency issue. Great example of experts run amok, and rating exist in large part because of government mandates. Muni bonds being only one of endless examples.

        But where things most likely get bent out of shape is where politics enters the marketplace to achieve political results. In the case of sub-prime mortgages it was Fannie Mae following the dictates of its political masters. In short, a creature of the Federal government, Fannie Mae, was captured by Congressional politics. Congressional mandates shoved Fannie into the business of using its credit to guarantee sub-prime mortgages that were securitized then sold to the public until ever more and ever risky loans polluted the nation’s pool of home mortgages and the scheme collapsed.

        This is a long story. But one could see the risk of these structures being guaranteed by Fannie long before the sub-prime debacle. Real estate is unique. It’s unlike other assets typically used for security. It’s very local and peculiar insofar as its quality as security of loans. So it’s properly the business of local lenders familiar with the unique nature of their local market. Hence the first multifamily Wall Street securities wrapped by a Fannie Mae Guarantee done in the early 1990’s which involved mixing “prime mortgages” from across the nation raised red flags among those knowledgeable about real estate by reason of real experience, rather that Business school financial models. So, at the same time, those doing the deal, the Wall Street folks with their black box computer models, fancy business school PhDs, and endlessly complex esoteric financial structures comprising multiple levels of risk (differently priced tranches cutting across thousands of loans) that no one really understood were at base untethered to the dynamics of the real estate securing them. Experienced real people could see this. The experts, enthralled with their financial modeling could not. And of course would not lessen. Too much pride and money was involved.

        And of course as always happens the crooks (smelling blood on the water) arrived for the killing. But this happened mostly later. Still, from the get go, people were making tons of money for getting these troubled assets off the books of troubled lenders as required by yet another government program of 1990’s regulations, so everyone forged ahead.

        Money corrupts. So experts began to run amok, fueled by the fact the experts who were creating the problem earned huge fees doing it before they offloaded the “hidden risk” to the public. Fannie Mae provided the perfect cover, giving triple A credit to less than triple A product. Thus a federally created program that for decades had built a liquid highly efficient mortgage market for properly underwritten home loans that was rightfully the envy of the world, was hijacked.

        The problem was further turbo-charged by more politics and government intervention. The ruse behind this maneuver was as American as Apple pie. Every citizen gets to own a home of his or her own, irrespective of their ability to pay for it. (a simplified overstatement but not by much.)

        Of course, Wall Street and conduit bundlers of sub-prime loans (all private) were only to happy to jump in, make a bundle, then offload even more junk onto the public, leaving Fannie Mae holding the bag by reason of its federally mandated guarantee.

        It was a perfect deal by Federal government and Wall Street standards. The politicians got all the credit. Wall Street and conduits that packaged the mortgages got high risk free cash profits up front. The taxpayer got the shaft (gigantic losses) in the back. The sub-prime homeowner got his own bankruptcy by reason of his federal government feeding him and/or her financial crack cocaine, all for political advantage.

        One great tragedy was the near ruination of Fannie Mae, which up until the early 90s was a poster child of successful government at work. The benefits that Fannie brought to this nation are incalculable. One can say this institution, as much as or more than any other, brought the American Dream to the the American people. Every credit worthy family got a home of their own, one they could afford, from a starter home, right up the ladder. No other country enjoys the success that Fannie Mae created for us. But how easily even the greatest of Federal government programs can be twisted out of shape, and then used for purposes that poison the financial health of a nation, its individual families and citizens. And this poison goes right to the core of the American dreams, our homes.

        Another lesson here is that there is a brake on experts taking undue advantage of private companies. Private companies cannot afford to go broke. That rule gets blurred if private companies get tangled up with government regulations and mandates that twists this iron rule (can’t go broke) out of shape by perverted the free functioning of a properly regulated marketplace.

        Clarification: Multi-family securitization refers to bundling large numbers of big commercial individual mortgage loans, each secured a rental housing project. Securitizion in early 90s might mix weaker credit loans with stronger loans, matching risks, to get the weaker loans off the books of troubled S&Ls as defined by federal law.

        Here a gov. program twisted the market. It was also a logical first step to later securitizition of sub-prime individual home loans whose gigantic failure shows how gov. intervention as a player in the market, tilting the free markets towards government mandated results, so often results in unintended consequences, often catastrophic ones.

        Government who become players in free markets play with fire.

        For more, see my comments at:

        • I think you just proved my point. The banks and their cronies jumped right in–they were not pushed by activist organizations.

          • Reed Fawell 3rd

            No, Barney Frank and his gang of leftist progressives were the prime essential movers of this public disaster. He and his gang busted open the floodgates of a government agency’s credit, hijacking it, so as to turn Fannie Mae into a vote buying machine for the Democratic Party.

            This corrupt maneuver poisoned the American housing market. And, as it did, the liberal left lied about what was happening for a decade (late 1990s to 2008), preventing reform, until their toxic government scheme blew up the American economy. As usual the black community was hurt the most. The liberal left stripped the black community, its rising lower and middle classes, of huge amounts of wealth, setting blacks’ financial health back generations.

            We see this pattern of leftist progressive induced destructive policies again and again harming the disadvantaged, their families, cultures, communities, and education. Now it is happening to American education from K – 12, and higher education, erasing and bankrupting the human capital of an entire nation, while its deliver no education worth having at all, to most of its students.

            This corrupt leftist system has saddled whole generations of Americans with ever mounting debt, ever more bad habits, and chronic anger at having wasted the most critical and best years of their lives. All of this thanks to our misguided government that has turned American education over to incompetent administrators, their crony capitalists, special interests and leftists culture warriors, allies, all of them in pursuit of ever more ill gotten public money, votes, and power.

  2. Black people with the same income level as whites have less savings, on average, and thus less money for a down payment. Perhaps that is due to the legacy of segregation and slavery. But it isn’t the bank’s fault. It has a legitimate interest in lending money to people who can afford a larger down payment, so that the bank avoids losses in the event of a foreclosure. As noted in the article above, “A higher down payment reduces risks for the lender.”

    Non-discriminatory lending criteria thus create an unintended racial disparity. And the disparity does not seem illegal, because banks have a “business necessity” in avoiding risky loans that endanger their safety and soundness (and can contribute to the instability of the financial system).

    • I agree with much of what Fred is saying and I think it is also instructive for other structural race issues also.

      Poor people – which include large percentages of blacks – tend to not have family wealth, nor a culture of understanding finances including the importance of savings for a down payment and credit reports.

      And we cannot and should not attempt to “fix” this by intervening in the market and proscriptively forcing companies to take risks that are contrary to sound banking practices – as long as there actually is no overt discrimination.

      This does not mean we should not address the issue.

      But heckfire – blaming the media is about as tone deaf as it gets.

      Where did Mercury get that data to start with?

      And why are we listening to just one media outlet to start with.

      If I had a dime every time I saw WSJ or the Washington Examiner did a biased look at something… they ALL do it and it is incumbent on US to go find the truth – and when we do – to not pretend otherwise later…

      We have the impacts of structural racism. We’re not goint to fix it overnight and we ought not do unsound and irresponsible things in an attempt to address it.

      But acknowledging it – should be done. To continue to deny it and then follow with opposition on all levels as if it does not exist, and did not exist and nothing needs to be done… those folks are part of the problem IMHO.

    • Risky lending?? For a mortgage? No, no, no. There’s no risky lending.

      All they want is 10% down on an asset with an historical 8% appreciation rate, and for you to hang in there for two years of payments. After that, in their myopic “real estate is stable” world, they clear a huge profit no matter what happens. In fact, they won’t lose money if you default on the 1st payment.

      That’s their model. Of course, what they didn’t expect was a huge number of defaults and a real estate market downturn.

  3. Typical rant. Btw the 2000-2008 market caught many buying real estate they could not afford. Leave to Bacon to trash Blacks exclusively on this point.

    • Labeling my post a “typical rant” does not constitute an argument of any kind. To the contrary, it suggests that you have no substantive point to offer in rebuttal to either my facts or logic.

      Please elaborate upon the insulting charge that I am “trashing Blacks” in this piece. In what way have I “trashed” anyone, other than, perhaps, the author of the Virginia Mercury piece?

  4. All mortgage holders were at risk from the easy terms of 15 years ago. You imply it is Blacks only. Also, why spend your weekends going after Virginia Mercury. Tiresome.

  5. No ?$&t Dick back to the point?

  6. “All mortgage holders were at risk from the easy terms of 15 years ago. You imply it is Blacks only.”

    If that wasn’t your point, I missed it.

  7. So Bacon is saying that the 2008 crash was worse for black wealth than Jim Crowe or redlining. Does he want to compare it to slavery too?

    • I chose my words deliberately. Slaves had no wealth to speak of, so there was nothing for them to lose. Jim Crow and redlining were indeed huge barriers to black wealth accumulation but they were not responsible for destroying black wealth. Blacks managed to accumulate wealth despite those barriers.

  8. Well.. there’s a struggle with the narrative. The preferred one says that yes, racism did happen but no one is really responsible… for it or for doing anything about it because it’s been corrupted by this left wing oppression thing..

    It’s a bad and unfortunate thing but stuff happens….

    • LarryG, you keep implying that no one has done anything about racism or poverty over the past 55 years.

      Are you really saying that we have had no programs to help the poor in that time? We currently spend about $1 trillion on anti-poverty programs (including Medicaid). That is not nothing.

      Are you saying that our major corporations, government agencies, educational institutions have not had affirmative action programs or minority business set-asides in government contracts over the past 45 years?

  9. And let’s not be Blaming the Banks… Most folk these days get mortgage from companies that specialize in,, well,, Mortgages… Quickens Rocket mortgage comes to mind,, and what do these companies want to do,,, they want to make money $$$$ and how do you do that??? Pretty simple, close the mortgage,,,, The Underwriters are under constant pressure from the salemen and Realtors to approve the mortgage,,,,
    Discrimination,,, ridiculous to think it’s happening,,, if someone doesn’t get a mortgage it’s because they Really are not credit worthy… that’s a whole different discussion…

  10. A Gleaming White Suburb in the Valley…

    • Yes, in late 90s to 08, a lot of people were convinced to buy houses way above the rule of thumb of 3x annual salary. Black and white.

      But over purchasing wasn’t the problem. No one under the age of, oh say, 45, who hasn’t been in their house for, oh say, 15 years can afford to buy off the mortgage IF THEY LOSE THEIR JOB.

  11. The banks lend in compliance with the rules of the federal mortgage agencies. They do what it takes to sell the loan to Fannie or Freddie, or qualify for insurance from FHA and the VA. If there is a risk it can’t be re-sold in that process, no loan. Uncle Sam completely runs this show. If there is “systemic” bias, don’t blame the banks, look at the agencies buying the debt. Likewise look to them when lending got too lax. Please. Those same federal underwriting rules forced us to put down a much higher down payment in 2013 when buying a condo, despite near perfect credit and a 7 figure net worth.

    And I’m sorry, Nancy Boy, but you’ve been leading the charge on this blog to shutdown the economy by forcing mandatory stay at home and peddling fear porn. So many of the jobless are on your head. I could see this coming in March and got shouted down.

    • Ooooh. A hit! I do fear I breathe my last! Oh, federal rules… written by the lenders, greased by lobbyists, and passed by bribe-takers.

      Okay, here’s some more insanity.

      Your vaulted American citizenship and rights are not based on your birth certificate. That’s just a piece of paper that keeps you from being ICE’ed out of the country.

      Nope, Your rights are all based on a number, usually in the hundreds, sometimes as high as the 10s of thousands, but nevertheless a seemingly random number.

      It’s right there on your front door.

      No number? No voting. No registering a car, no registering an RV, no boats, no insurances, no bank accounts, or credit cards, no telephone… nothing.

      And here’s the fun part. If you do manage to do any of those things without that number, e.g., using a PO, or similar “mailing address” service as a dodge. You face prosecution for violating insurance and voting fraud laws and dozens of other State vehicle laws.

      Chew on that. Basically, the itinerant lifestyle is illegal in America. Don’t believe me? Talk to a lawyer.

      As to being shouted down. Let me call you an ambulance. Oh wait, no, you might not want to go near a hospital.

    • BTW, your little rant at me doesn’t explain why I can’t go to the Bahamas, or Canada, or Europe. I want to enjoy the fruits of my career. And because we Americans behaved as our idiot, reckless, leader wanted… we are pariahs.

      That’s not on me, me Bucko. That’s on you.

      • Actually, no, I’ve been all for the masks since early on. I agree the message from Washington has a lot to do with why we’re stuck here still. But I’m still thinking the reality is this bug is so efficient, nothing can stop it and we’re seeing that in other parts of the world. We get a vaccine, or the herd gets culled. Nature’s way. (We too have had travel plans disrupted badly.)

        The people getting culled, even those in the later years, mostly have a series of conditions that for decades they’ve been told would eventually kill them early. Quel surprise. CDC is still saying only 6% of death certificates list COVID alone.

        Nobody asked me whether it was a good idea to open bars or allow large gatherings. Not! But plenty of things that were verboten in April are just fine and don’t need to be restricted. If day care worked, why not schools? We’ve been back at the Y now for six weeks and I’m not aware of any issues there. The 10′ of spacing works fine. That’s more effective than these porous masks.

        One more pretentious insertion of a foreign language from a part of the world I visited: Inshallah. We’re kidding ourselves to think we control these forces.

        • Well, given what we know of this new virus, you and I may both very well die from it a decade hence. You from a new infection, and me from complications from having had it a decade earlier.

          BTW, I suspect the spousal unit and I had it in March. From our experience, you don’t want it. We decided the best way to confirm this would be to give blood, where they will test and if we have had it, they can use it for plasma therapy.

          Bad news: getting an appointment for dinner at the WH would be easier than a blood donation appointment! Sheesh!

          • Steve Haner

            I had something in March. It seemed to respond to Claritin so probably allergies. Can’t be sure.

          • Nancy_Naive

            Well, March 4 to the 14th, we went to Universal Studios and Key West… party! They closed Universal right as we left. On Friday, the 19th?, I slept at the dining room table because I couldn’t breathe lying down. I suspect Covid because we did flu shots and it wasn’t a cold. Cough all you want, nothing coming out.

  12. Larry. No, no, no. Pickleball is a great way to break your ankle or forearm. I have seen it happen!

  13. It does appear that you do choose your words carefully to avoid and / or to downplay the actual underlying problems. Like so many here who ignore the structural bias build into the mechanisms of the culture and economy. It is just so much easier to blame the “other” whatever form they make take.

  14. For some insight into how bias against Black economic credit and financial growth has been built into America’s banking system Bacon and others might want to take a look at a book by professor Mehrsa Baradaran entitled “The Color of Money: Black banks and the Racial Wealth Gap”.

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