Congress enacted The Home Mortgage Disclosure Act (HMDA) in 1975 to combat credit shortages in urban neighborhoods throughout the United States. The government believed that financial institutions contributed to the decline in cities across the Rust Belt, from Detroit to St. Louis, due to discriminatory lending practices. The Federal Financial Institution’s Examination Council (FFIEC) collects and discloses data about applicant and borrower characteristics to help identify possible discriminatory lending patterns and enforce anti-discrimination statutes. Its primary purpose is to provide data, but it merely supplies the data — no government agency interprets the data. In other words, it’s up to a discerning public to scrutinize the data and determine whether discriminatory malfeasance has occurred. After an initial scan of the database, we saw a disturbing trend: 26% of African-American applicants were denied mortgages compared to 10% of white-American applicants. Before crying wolf, we needed to dig further into this data, using what was available to control for potential extraneous variables. After collecting and analyzing over 1.7 million applicants from 2016 (read more about our methodology here), two things became clear: Even when controlling for income, African Americans are twice as likely to be denied a mortgage than white applicants The applicant data points are limiting, and HMDA’s data set is missing important variables like why applicants were denied In this study, we’ll dive deep into our key findings, showing you which regions of the country African Americans are most likely to experience lender discrimination, causes and effects of lender discrimination, and what needs to change for lenders to be held accountable. Key Findings Racial discrimination still exists in mortgage lending: African Americans are twice as likely to be denied a mortgage when controlling for income

Disparity between white and black mortgage approval rates is most pronounced in the South: 89% of white applicants are approved in Southern states, compared to 76% of black applicants when controlling for income

The West has the least racial disparity between white and black applicants, but the difference between approval rates is still statistically significant, indicating racial discrimination in the mortgage industry is a nationwide issue

Mortgage applicants are overwhelmingly white: Of our 1.7 million applicants sampled, 1,482,248 mortgage applicants were white, compared to 80,442 African Americans, 93,762 Asian Americans, 29,293 American Indians, and 15,645 Native Hawaiian or Pacific Islanders

The Home Mortgage Disclosure Act (HMDA) grew out of public concern over credit shortages in urban neighborhoods, but the data is alarmingly sparse: 52% of black applicants had no reason listed for their mortgage being denied — i.e., the data set is incomplete in important areas needed for careful scrutiny

African-American and Hispanic home buyers are respectively 105% and 78% more likely to use high-cost mortgages for home purchases, putting them at greater risk of foreclosure Insights & Analysis African-American mortgage applicants are twice as likely to be denied credit as white applicants

In 2016, 19% of African Americans were denied mortgages compared to 9% of white applicants, when controlling for applicant incomes. Racial discrimination in lending was most pronounced in Southern states. 24% of African Americans were denied mortgage applications in the South, compared to 11% of white applicants when controlling for income. The West has the least racial disparity between white and black applicants, but the difference between approval rates is still statistically significant, indicating racial discrimination in the mortgage industry is an issue nationwide.

The states where black applicants are least likely to get approved include Kansas, South Carolina, Mississippi, Louisiana, Arkansas, Delaware, and Alabama. In states like South Carolina, 49% of black applicants were denied applications compared to 8% of white applicants, not controlling for income. For further context, there are only four states where white applicants are denied at a higher rate than African Americans: Montana, Idaho, Hawaii, and Vermont; and in these states the discrepancy between black and white approval rates is less than 7%. However, in states like South Carolina, there’s a 42% discrepancy between black and white approval rates.

Not only are African Americans denied mortgages at a higher rate, but they’re less likely to apply for mortgages in the first place. The FFIEC reported 3,673,959 white Americans applied for mortgages in 2016, compared to only 342,387 African Americans. About 0.85% of the African American population applied for mortgages compared to 1.52% of the white population in the U.S. 52% of black applicants had no reason for being denied a mortgage A study from Reveal and The Center for Investigative Reporting found that racial disparities exist in 61 metro areas across the country, including Atlanta, Detroit, Philadelphia, St. Louis, and San Antonio. Reveal conducted interviews with lenders and home buyers to get a picture of why these racial discrepancies exist. While mortgage lenders don’t dispute they deny loan applications from people of color at higher rates than white people, they attribute the disparity to hidden factors like credit scores. New Jersey-based TD Bank, which denied a higher proportion of black and Latino applicants than any other major lender, said it “makes credit decisions based on each customer’s credit profile, not on factors such as race or ethnicity.” Here’s the problem: credit scores, debt-to-income ratio (DTI), and other important control variables aren’t included in the HMDA’s database. These key applicant metrics are not mandated by the HMDA, so lenders aren’t required to disclose this critical information to the public. Another critical piece of information, why the loan was denied, is an optional field for mortgage lenders not regulated by the Office of the Comptroller of the Currency. What are the results of these lax reporting standards?

52% of African American applicants have no exact reason their application was denied, the highest of any race. So while we know the most common reasons African Americans were denied mortgages were credit history and debt-to-income ratio, we do not understand why over half of the applicants were specifically denied. The Dodd-Frank Act explicitly amends HMDA to require lenders to disclose important data points about applicants — like credit score and debt-to-income ratio — to the public while keeping applicant identities confidential.