In Syracuse and statewide, people of color pay more for home loans – if they can get them

Syracuse, N.Y. – African Americans and other people of color in Syracuse and across the state face racial barriers to credit that hold them back from buying homes and building the household wealth that whites often enjoy.

That’s the conclusion of a new report released today by the state Attorney General’s Office, “Racial disparities in homeownership.”

People of color own homes at less than half the rate of white residents; they get denied mortgages more often; and they incur higher interest charges when they do get approved, the report found.

Those disparities hold true even when credit scores, debt-to-income ratios and other mortgage underwriting considerations are factored in, the report said.

In Syracuse, for example, homeowners from neighborhoods dominated by people of color are roughly twice as likely as someone from a white area to get rejected for a mortgage refinancing loan – the worst such disparity in the state.

And residents of majority POC neighborhoods in Syracuse are 59% more likely to be denied a home purchase mortgage, despite equal credit scores, loan-to-value ratios and other criteria.

The bottom line: Blacks, Latinos, Asians and other people of color face higher barriers to home ownership and to the household wealth that often comes with it.

Collectively, people of color have paid hundreds of millions in higher borrowing costs, and those who were denied mortgages have lost out on the rising home values that can increase wealth, the report concludes.

“Owning a home is an essential part of achieving the American dream and building wealth to pass on to future generations,” Attorney General Letitia James said in a news release. “Unfortunately, unequal access to affordable credit is still pervasive across our state, reinforcing the legacy of segregation.”

The difference that homeownership can make is clear to Sheona Williams, an African-American mother of two who bought a newly constructed home from Home HeadQuarters two years ago.

Her mortgage payment is only about $200 a month more than the rent she paid during the eight years she lived in a public housing project, she said. Meanwhile, she is reaping the equity dividend from rising home values.

The attorney general’s report reaffirms the need to enforce decades-old anti-discrimination laws. But the report also said the housing disparities are systemic – the byproduct of a century of redlining and segregation — and call for changes in the mortgage industry.

Among the solutions proposed by James: more financial support for community development financial institutions (such as Home HeadQuarters or Empower credit union), and legislation to enable the creation of government-owned banks to finance loans and the construction of new housing.

“The problems reflect systemic failures that will require structural reforms,’’ the report concludes.

Data analysts at the AG’s office gathered information reported by mortgage lenders for the years 2018 through 2021 and paired it with Census data, credit reports and other information to compare the experiences of white borrowers with people of color, or POC for short. POC households were defined as those in which at least one head of household was not a non-Hispanic white person.

The report compared outcomes for individuals based on race, and separately compared results based on where the property was located — whether in a Census tract that was majority white or majority people of color.

Both lenses showed the same picture, according to the report. People of color are consistently held back by disparities related to home ownership. Among the report’s findings are these:

• Mortgage applications from people of color are denied more often than applications from white borrowers. Black applicants were denied 23% of the time, Latinos 20% and whites only 14%. Those disparities remained when controlling for the credit score of the applicant. At higher credit scores, Blacks and Latinos were denied loans at roughly twice the rate of whites.
• Black and Latino borrowers pay more in interest and fees than white and Asian borrowers. On average, that means $4,200 more in interest payments over the course of the loans and an additional $900 in other costs and fees. For home purchase loans originated between 2018 and 2021, Black and Latino borrowers will pay more than $200 million extra because of higher interest rates over the full terms, the report estimated. (Asian borrowers also paid higher interest and fees than white borrowers.)
• People of color are 21% more likely than whites to have their refinancing loan applications denied, on average. On top of that, lenders received far fewer refinancing applications from Census tracts with mostly POC residents. As a result, homeowners in those areas lost out on the savings available during more than a decade of low interest rates following the last recession.

The attorney general’s report asserts that the current mortgage system, which is dominated by for-profit lenders that don’t take bank deposits, only exacerbates the problems.

The report advocates more government funding for the small percentage of mortgage lenders that focus on lending to under-served communities. Community development financial institutions, or CDFIs, typically focus on providing loans to minority applicants and to low- and moderate-income neighborhoods, said Kerry Quaglia, CEO of Home HeadQuarters in Syracuse.

Some 62% of first mortgages written by Home HeadQuarters last year went to people of color, which is typical, Quaglia said. And 63% of home improvement loans went to POC households, he said.

Within the city of Syracuse, where nearly half the population is white, 90% of Home HeadQuarters’ loans went to people of color.

“CDFIs can help resolve this challenge,’’ Quaglia said. “The problem is, most CDFIs are way under-capitalized.’’

The attorney general also recommends state funding to provide down-payment assistance and subsidized interest rates for “first-generation’’ homebuyers – that is, those whose parents were not homeowners. Without such help, many people with limited incomes might be permanently shut out of homeownership.

The attorney general also advocates passing legislation to allow the creation of public banks that are owned by state or local government. Such banks would be accountable to the community, the report said.

Staff writer Tim Knauss can be reached at [email protected] or (315) 470-3023.