Deep Racial Gaps In Homeownership: New Report From NY AG's Office

NEW YORK — A new report Tuesday from the New York Attorney General's Office details deep racial disparities in homeownership and access to home financing across the state.

Among the report’s top findings is a gap in homeownership rates in every region in New York, including the Hudson Valley and Long Island, with white households owning their homes at nearly double the rate of households of color on average.

These disparities contribute to the racial wealth gap and result in higher housing costs for homebuyers of color, making it harder for communities of color to build lasting financial security and overcome decades of systemic discrimination in the housing market, said New York Attorney General Letitia James.

"Owning a home is an essential part of achieving the American dream and building wealth to pass on to future generations," she said in an announcement about the report. "Unfortunately, unequal access to affordable credit is still pervasive across our state, reinforcing the legacy of segregation, leading to a disparity in homeownership, and fueling the racial wealth gap."

In a nationwide survey conducted in 2022, nearly three-quarters of respondents listed homeownership as the defining feature of the American Dream, over having a successful career, earning a college degree, owning a car, having children, or being able to retire, according to the report, "Racial Disparities in Homeownership: How lending practices have prevented New Yorkers of color from purchasing homes and deepened wealth inequality." Homeownership can provide financial flexibility to not only withstand financial emergencies, but also support opportunities for economic growth, like providing for children’s higher education.

The report looked at racial disparities across the state in several areas:

• overall rates of homeownership
• the submission of loan applications for home purchases
• the likelihood of those applications being denied
• the types of loan products and terms
• refinancing opportunities

The report also considered how individual borrowers experience the disparities; how the disparities predominantly affect neighborhoods of color; and how, with slight variations across markets, they exist across all regions of New York.

For example, the report found that homeownership in New York is concentrated in white households and neighborhoods. Statewide, white households are 25 percent more likely than Asian households to own their home and more than twice as likely as Black or Latino households to own their home.

Across the state, lenders receive home-purchase applications at higher rates from predominantly white neighborhoods than from neighborhoods of color. "For example, Long Island shows a clear lack of applications from neighborhoods of color at the western ends of both Nassau County and Suffolk County," the report said.

Even among borrowers with the highest credit scores, non-white mortgage applicants are denied a mortgage at nearly double the rate of white applicants.

This is true even when controlling for credit score, income, size of loan, debt-to-income ratio, loan-to-value ratio, and year of application. When controlling for these factors, the probability of a Black or Asian applicant’s purchase application being rejected in 2021 remained 43 percent higher than for a white applicant; Latino applicants were 33 percent more likely to be rejected than a white applicant, the report said.

Applicants applying for home-purchase loans from neighborhoods of color were more likely to be denied a loan than applicants from a majority white neighborhood in each metropolitan statistical area. This is even more stark in several parts of the state, the report said: In the Dutchess/Putnam metro area, applicants from neighborhoods of color are 72 percent more likely to be denied, second only to the Buffalo MSA, where applicants from neighborhoods of color are 151 percent more likely to be denied.

In addition, OAG’s report revealed that non-white prospective homebuyers face higher costs than their white counterparts. They are more likely to be charged higher interest rates for their loans, more likely to use costlier Federal Housing Administration loans, and less likely to be approved to refinance their loans to a lower rate. These added burdens total over $200 million more in interest and other costs over the course of Black and Latino borrowers’ loans, the report said.

"FHA loans can help bridge a critical gap for borrowers who have less access to capital for a down payment. However, FHA loans often come at a steeper interest rate than conventional loans," the report said. "The problem may be particularly acute in New York City and Long Island, where home prices are higher and therefore more likely to require higher down payments. In these regions, racial disparities in the use of FHA loans are the highest."

The costs associated with refinancing and cash-out refinancing increase almost three-fold for Black and Latino homeowners, the report found.

Discrimination in housing and homeownership have defined New York's neighborhoods, for generations, as around the country, the report said. FHA loans were initially designated only for white homebuyers. "Redlining" began as a federal policy with the advent of the Home Owners’ Loan Corporation during the Depression. Color-coded maps for lenders marked neighborhoods that were deemed high risk, frequently due to "threat of infiltration of foreign-born, negro, or lower-grade population."

After the Supreme Court struck down race-based zoning laws, private entities stepped into the void to create private agreements, the report said, citing a survey of 300 developments built between 1935 and 1947 in Queens, Nassau, and Westchester counties which found that 56 percent had racially restrictive covenants; 85 percent of the larger subdivisions had them.

Forty years of redlining were followed by urban renewal. Then predatory lending, primarily to people of color, led to the housing crisis of 2008. Higher-income Black Americans were three times as likely as higher-income whites to be victims of subprime loans, the report said. "These institutions claimed to be increasing access to credit, but the products often stripped Black homeowners of equity or trapped them in high-cost mortgages that would ultimately cause more harm than good."

The report recommends state-level policy solutions that could help close the gap, including:

• Subsidizing down payments and interest rates for first-generation home buyers — who are disproportionately people of color — to make it easier for families who have never bought a home to get credit.
• Increasing state funding to nonprofit financial institutions that can better support communities of color underserved by traditional financial institutions.
• Passing the New York Public Banking Act to create a regulatory framework for cities, towns, and regions to establish public banks. These institutions would help expand access to affordable financial services in underserved communities.
• Increasing resources for government agencies' fair lending investigations and strengthening New York’s Human Rights Law to expressly prohibit lending practices that have a disparate impact on communities of color.
• Exploring options for state-provided banking services at places like libraries and post offices to help reduce the population of New Yorkers who lack adequate access to traditional banking services.

James' announcement of the report included reactions from downstate housing advocates.

"More than 50 years after the passage of the Fair Housing Act, it is shameful that systemic racial discrimination still exists in our housing market," said Ian Wilder, Executive Director of Long Island Housing Services, Inc. "Business and government in New York must come together to take responsibility for creating these abusive conditions and make significant changes in how they operate to remedy this injustice."

Tanya Dwyer, Legal Services of the Hudson Valley, said the numbers in the report reflect the disparities and effects of systemic discrimination that they see in their work with clients. "As a Homeowner Protection Program Network member, we will continue to fight alongside the Attorney General’s Office to protect homeowners from such discrimination."

Methodology: OAG used several data sources to analyze disparities in homeownership and access to mortgage credit, including census data for general homeownership rates, neighborhood demographics, number of homeowners in neighborhoods, and refinancing utilization; data collected in accordance with the Home Mortgage Disclosure Act, including both public data as well as non-public credit scores, from institutions regulated by the Consumer Financial Protection Bureau, the Department of Housing and Urban Development, and the National Credit Union Administration; and Federal Deposit Insurance Corporation data for bank-branch locations.