“This article is filled with bullshit “phony stats” produced by a biased consumer advocacy group (not any legitimate source or the government). We have learned nothing from our recent past. Here we go again, pressuring banks and mortgage lenders (using absolutely false allegations of racism) to make more mortgage loans to less financially-qualified minorities…
…that are risky for the financial institutions and as we now know…very risky for the borrowers and even the broader economy in times of crisis.”, Mike Perry, former Chairman and CEO, IndyMac Bank
July 19, 2016, Peter Eavis, The New York Times
Race Strongly Influences Mortgage Lending in St. Louis, Study Finds
By PETER EAVIS
A street in Ferguson, Mo., in the St. Louis metropolitan area. Many neighborhoods in the St. Louis area remain largely segregated. Credit Whitney Curtis for The New York Times
In the two years since the shooting death of Michael Brown in Ferguson, Mo., the nation has come to learn much about the stark socioeconomic differences between black and white neighborhoods in the St. Louis area.
Now, a new study says that mortgage lending appears to have played an important part in reinforcing segregation there.
Federal data has long shown that the black neighborhoods of St. Louis have been almost devoid of mortgage lending in recent years. A major reason for the dearth of lending is that the incomes of many black residents may be too low to afford a house or qualify for a loan.
But the new report, released on Tuesday by the National Community Reinvestment Coalition, a consumer advocacy group, found that race was also an important factor in deciding where banks lend.
Specifically, the report indicated that banks made fewer loans to middle- and lower-income borrowers in minority neighborhoods than to borrowers with similar incomes in white neighborhoods.
This finding, as well as other data in the report, supports the view that banks avoid depressed minority neighborhoods over time, which in turn makes it harder for residents of these communities to take out loans that could be used to buy and improve properties. It is well documented that a steady rise in homeownership can help bolster the economy of lower-income neighborhoods.
“We need a full and genuine commitment from financial institutions to responsibly serve all communities,” John Taylor, president of the National Community Reinvestment Coalition, said in an email. “We need to make sure that your skin color or your ZIP code doesn’t determine whether or not you have a fair shot to prosper.”
The coalition’s report also looked at trends in mortgage lending and race in Milwaukee and Minneapolis, which also have high levels of racial segregation. In each city, the coalition determined that income was often the most powerful determinant of who got a mortgage. But the researchers also tried to identify whether whites in the same income bracket as minorities got more loans.
They first looked at how many mortgages were made to low- and moderate-income borrowers of all races. In St. Louis, these borrowers accounted for 32 percent of mortgages made in 2013. The researchers then looked at the racial makeup of the neighborhoods in which this particular set of loans were made, using United States census data and mortgage data that banks report to a federal financial regulator.
They found that most of these loans went to neighborhoods in St. Louis where whites made up most of the population. Nearly half went to census areas where minorities made up less than 10 percent of the population, and another fourth went to areas where minorities made up 10 to 19 percent of the population. Only 3 percent of loans to low- and moderate-income borrowers were made in St. Louis neighborhoods where minorities made up 80 to 100 percent of the population.
“In the city at large, we found that the lack of lending is not fully explained by income — race is a critical factor,” Bruce Mitchell, a researcher at the coalition, said in an email. “Credit is flowing more to neighborhoods with higher percentages of white residents than it is to majority African-American neighborhoods of the same income profile.”
The disparity can be clearly seen in individual St. Louis census tracts.
In one tract, where 23 percent of the population was African-American, and where residents had a moderate income, six mortgages were made per 100 homes in 2012 to the end of 2014.
That number of loans was higher than in a nearby middle-income tract where African-Americans made up 58 percent of the population. In this area, 2.5 loans were made per 100 homes in the same period. (The frequency of lending is measured per 100 homes to account for the fact that tracts don’t contain the same number of homes.)
The low number of mortgages made in minority areas can be explained in part by the fact that fewer people in these areas applied for a mortgage. The lower number of applications may to a large extent be explained by lower incomes and the belief of some prospective borrowers that it is too difficult to qualify for a mortgage.
That said, applicants for mortgages in minority neighborhoods were denied a loan at significantly higher rates than in mostly white neighborhoods. In areas where minorities made up between 10 and 19 percent of the population, 64 percent of mortgage applications by low- and moderate-income applicants were approved. In St. Louis areas where minorities made up 50 to 79 percent of the population, only half the mortgage applications in this income bracket were approved, according to the coalition’s analysis.
The lower approval rate in minority neighborhoods in St. Louis may partly be a result of factors like weaker credit scores and lower or more intermittent incomes. But the lower rate might also reflect the relatively low number of banks in some of these minority neighborhoods.
“Some areas of North City and East St. Louis may constitute ‘banking deserts,’ as they are isolated from access to conventional financial services,” the coalition’s report said.
Last year, the group did a similar analysis of lending in Baltimore, concluding that the racial composition of an area often drove where banks made mortgages.
A version of this article appears in print on July 19, 2016, on page B3 of the New York edition with the headline: Race Strongly Influences Mortgage Lending in St. Louis, Study Finds.