By Matt Tomsic
Published Nov. 7, 2011
Lowcountry blacks are more than twice as likely to be denied a mortgage as their white counterparts.
In a 16-page report, the Charleston Trident Urban League presented the disparity between white and black access to mortgages in the Lowcountry.
George Bresnihan, director of housing services for the league, said the report leads to a simple question: “Why is there a disparity between whites and nonwhites?”
But wrapped in that question are hundreds of data points — black loans originated, white loans originated, total approved, denial ratios, approval rates, applications denied — that lead to several issues — financial literacy, marketing to minorities, lending requirements, credit history, down payments, employment, collateral — that influence the disparity, which has implications on racial wealth gaps as well as equitable opportunities for Lowcountry residents to own their own homes.
More than homeownership is at stake if the availability of mortgages doesn’t correct itself.
The city of Charleston contracted the Charleston Trident Urban League to study loan data organized through the Home Mortgage Disclosure Act, which requires financial institutions to maintain and disclose data about home purchases with conventional, Federal Housing Authority, Veterans Affairs Department, Farm Service Agency and Rural Housing Service loans.
The report, released in July, studied mortgage applications and approvals in the Charleston-North Charleston-Summerville metro area and compared those figures by race.
“With blacks making up 30% of the population, it is reasonable to expect that financial institutions provide a level of service closer to the percentage of the population,” the report stated.
Bresnihan said the report doesn’t argue the cause of the disparity is race. The numbers just happened to break down that way.
“It’s really not an indictment of the banks,” Bresnihan said.
Otha Meadows, president and CEO of the league, said the report shows homeownership isn’t working the same way for some as it is for others.
The report, Meadows and Bresnihan cited a plethora of issues — marketing by banks, stricter lending requirements, financial literacy and management — that impact the disparity.
“I think there is something that can be done in a better way in terms of outreach and marketing to different segments of the community, the minority community specifically,” Meadows said. “If they’re not engaged, if someone is not going out and actively seeking their business, then what’s the motivation for them to go and do business there? The other thing that I think we have to look at is why is it that there are financial institutions that have never taken an application from a person of color. So what we’re asking institutions to do is look at their marketing effort. Are they effective in targeting the minority communities?”
Bresnihan also cited stricter lending requirements banks began enforcing because of the Great Recession, which helped slow all mortgage activity. Overall, the Charleston-North Charleston-Summerville MSA saw a 53% decrease in mortgage lending from 2007 to 2009. Bresnihan said banks began trying to reduce their risk, requiring higher credit scores, larger down payments and more financial documentation that went further back.
“After the dive in the economy, they’re going back at least two years, and if that doesn’t look too cool, they’re going to go back further,” Bresnihan said. “There are still avenues out there for people to purchase homes, but the primary thing is you have to be ready — credit-wise, job-wise. Those two are the key.”
From 2007 to 2009, banks denied 42% of black applicants because of their credit history, while 3% were denied because of their employment history, according to the league’s report. Banks denied 24% of white applicants because of their credit history and 4% because of employment history.
“Financially, credit is the most important thing that is in your life,” Bresnihan said. “Your credit score determines how your life is going to be, your financial life. If it’s good, life is good. If it’s not good, life is not good.”
The league hosts first-time homebuyer workshops and educates anyone interested in financial basics. The group uses several approaches, Meadows said.
“I think its key for us to understand while persons may come to the league for a particular situation, there are other factors that will have an impact on their ability to be successful,” Meadows said.
He used the example of someone who comes to the league for help finding a job. To help that person, the league considers transportation needs, home life, education and other criteria.
People must learn how to manage their income and expenses, save money and maintain a good credit score to be financially stable and to position themselves for mortgage approvals.
“You operate your house like it’s a business,” Bresnihan said. “The budget has to support whatever you do without going into debt. That’s a discipline change in a lot of folks.”
Homeownership and the wealth gap
Racial wealth disparities are exacerbated by the inability of blacks to qualify for home loans at the same rates as whites.
A 2011 Pew Research Center study found that white households have 20 times more wealth than black households, according to 2009 figures. The median net worth of white households then was $113,149, compared with $5,677 for blacks.
Rakesh Kochhar, a senior researcher for the Pew Research Center, said the 2011 study examined the outcomes of the plummeting housing market and recession, and homeownership plays a role in household wealth because often it is the largest asset.
“It is true that homeownership is a major asset, and generally speaking, homeowners have more wealth,” Kochhar said. “Those groups that have higher homeownership rates do have higher wealth.”
Meadows said asset-building — including homeownership — helps drive the economy and provides stability. And those opportunities have to be equitable.
“What better asset to have than a home?” Meadows said.
Kochhar said most people would like to see economic activity that is more widespread and available to everyone.
“One way to frame it is that the economic opportunity or economic equality, whichever way you want to express it, one would think of that as part of social fabric,” Kochhar said. “With more inequality, you essentially have a social fabric that is more stretched.”
Meadows said Charleston has been recognized nationally for its quality of life.
The Lowcountry is also bringing new industries and companies — the Clemson University Restoration Institute and the Boeing Co., to name two — that are expected to create higher-paying jobs.
“But what we have to do if we are truly going to realize potential, we have to make sure that everyone is able to participate in that prosperity equally,” Meadows said.
To accomplish that goal, the Lowcountry needs an approach that tackles education, workforce development and other criteria. Meadows said groups like the Charleston Trident Urban League need to create partnerships with government and community organizations to address all of the Lowcountry’s needs.
“No one organization has the ability to address all of this by themselves,” Meadows said, adding that groups need an effective strategy to help everyone participate in prosperity. “And the better we’re able to do that, the more we’re truly able to realize this great potential that we have in this community.”
To realize the potential, banks, advocates and residents have several issues to address thanks to the study, which provides the information to start a conversation about an equitable way to homeownership and prosperity.
Reach Matt Tomsic at 843-849-3144.