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Study: Minorities remain much more likely to be denied mortgage in Twin Cities

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Twin Cities racial minorities are denied mortgages 2-3 times more than whites, regardless of credit scores or other important factors affecting the approval process, according to a new study by the Federal Reserve Bank of Minneapolis. There is a possibility.

Banks have found that Asian applicants have a mortgage refusal rate of 3.5%, while Latin applicants have a 4.2% and black applicants have a 5.5%. White applicants have a 1.7% chance of being rejected.

In an interview, Alene Tchourumoff, Senior Vice President of Community Development and Engagement on the Federal Reserve Board, said, “We have one of the largest home ownership disparities in the country, which has changed significantly over time. No, “he said. “We were wondering: what are some of the features that might explain the change in home ownership?”

The FRB is less likely to buy a home for people of color, using more detailed information that was not available or incorporated into previous mortgage denial analyzes, such as the applicant’s credit score. Or better understood why it’s low. For many, home ownership is important for building long-term wealth.

Tchourumoff has been criticized for not reflecting factors such as the credit score of the mortgage application process in many previous studies, which do not reflect the most important considerations in the underwriting process. Said.

This analysis is based on federal mortgage disclosure law (HMDA) mortgage data from 2018 to 2020 for approximately 100,000 borrowers in the Twin Cities Metro area of ​​seven counties. It focused on those who applied for a 30-year traditional mortgage, which tends to be the lowest risk mortgage.

A study conducted by Ben Horowitz, Kim En Kee, and Katie Lim managed real estate locations, mortgage loan-to-value ratios, and borrower debt-to-income ratios.

“This was really trying to find an apple-to-apple comparison,” said Ryan Nan, vice president of community development and engagement. “It turns out that it’s not about places or neighborhoods, but about people and what they look like on paper.”

The survey covered 56% of home purchase mortgage applications for single-family homes owned by owners in the Twin Cities region over the three years. About 20% of these applications are for residential use in Minneapolis and St. Paul, and the rest are in the surrounding suburbs.

Researchers pointed out that some of the fluctuations in rejection rates may be explained by differences in various factors, including wealth. For example, black households earn less than half the median income of white households. Other unobservable differences, such as employment and wealth, were also important, they said.

The Fed’s report comprehensively shows the differences in rejection rates between racial and ethnic groups, but does not fully explain why the gap exists. This is a perplexing issue for the mortgage industry itself.

“Yes, that systematic gap remains in our industry,” said Keenan Lavati, vice president of Belbank Mortgages. “We need to help people overcome homeownership obstacles, along with other mortgage companies in Minnesota, and across the country.”

Public and private partnerships aimed at narrowing the rejection gap and increasing racial minority homes have been underway for decades, Raverty said. But when the industry shifted its focus to helping existing homeowners avoid foreclosures, they derailed slightly during the 2008-09 recession.

Lavati, who belongs to the leadership team of the Home Ownership Opportunity Alliance, a coalition of organizations, businesses and individuals working to increase minority home ownership in Minnesota, is currently focusing on the home ownership gap. He said he was back to fill in.

The U.S. homeownership rate in 2020 rose to 65.5% in 2020, a record increase of 1.3% year-on-year, but the black homeownership rate was only 43.4%, slightly lower than 10 years ago. According to a recent report, the National Association of Real Estate Agents.

BellBank Mortgage, Minnesota’s largest personal mortgage company, recently hired Kasey Kier as its national community development manager. After 27 years at the Minnesota Housing and Finance Agency, recently as a Deputy Commissioner, Kear has been part of the solution for the community where the company addresses some of these industry-wide problems and Bell serves the nationwide community. We are responsible for helping you become.

To close the racial homeownership gap, public and private partnerships are needed, Kear said. The McKnight Foundation recently announced the Ground Break Coalition. Create a $ 2 billion fund to address inequality regional.

Lenders must also help minority members eliminate the myths that have made them think homeownership is impossible, according to Kear.

“People aren’t aware that they don’t have to do it alone,” she said. “We need to work better with the community, develop the right partnerships and the right programs. If we didn’t intend to change things, things wouldn’t change.”

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