Black residents in Connecticut face higher mortgage denial rates

Eleazar Parra, 6, stands quietly with his mother, Maria Ospina, on the steps of New Haven City Hall during a march where immigrant and Black communities united to protest racial injustice. CREDIT: CLOE POISSON / CTMIRROR.ORG

June 05, 2024 Story by: Editor

Black residents in Connecticut are more than twice as likely to have their mortgage applications denied compared to white residents, according to recent data.

Zillow reports that in 2023, 13.8% of mortgage applications from Black residents were denied, compared to 11.3% for Hispanic residents, 7% for Asian residents, and 5.4% for white residents.

Consequently, while Black people make up 13% of prospective homebuyers in Connecticut, they represent only 7% of those who successfully secure mortgages.

These figures align with national trends, where overall denial rates are higher (12.6% nationally versus 7.7% in Connecticut) but show a similar pattern: Black applicants are rejected nearly twice as often as their white counterparts.

Orphe Divounguy, a senior economist at Zillow, attributes this disparity to high home prices that render mortgages unaffordable for individuals with lower incomes.

“When home values are rising really rapidly, especially in a state like Connecticut with high-income inequality, people at the lower end of the income distribution are going to really feel the squeeze,” Divounguy stated.

Connecticut has seen a surge in housing costs due to record-low inventory and high demand, ranking seventh nationally in home price appreciation during the first quarter of this year, according to the Federal Housing Finance Agency.

As prices soar, those able to buy homes often have high incomes or financial support from family. A 2023 Zillow survey found that 49% of first-time homebuyers used gifts or loans from friends or family to fund their purchases.

The new Zillow data, released under the federal Home Mortgage Disclosure Act, indicates that common reasons for mortgage denial include lack of collateral, high debt-to-income ratios, and poor credit history.

Homes have historically been the largest wealth-building asset for American families, and lack of access to mortgages can have significant long-term economic effects. Housing discrimination, both historical and ongoing, is a key factor in the wealth gap between Black and white Americans.

“There are long-term ramifications of this,” said Sacha Armstrong-Crockett, a real estate agent and fair housing advocate in Middletown. “Connecticut is already segregated, and we’re going to turn around and our neighborhoods are going to be even more segregated as Black folks are unable to purchase.”

Addressing this issue isn’t as simple as approving more mortgages for low-income residents. In the run-up to the 2008 financial crisis, many lenders targeted poor Black and Latino communities with subprime loans, leading to a financial meltdown.

“The housing market is so broken in so many ways, and this is just one of them,” remarked Pete Harrison, Connecticut director of the non-profit Regional Plan Association. “It’s damned if you do, damned if you don’t.”

Divounguy believes the solution lies in building more housing, which could lower prices and make homeownership more accessible to low-income individuals. Advocates in Connecticut have pushed for more housing construction, particularly affordable, multi-family units, but local leaders often resist, fearing changes to their towns’ character.

“Ultimately, fixing housing affordability across the country is going to take more housing construction,” Divounguy said. “The reason things are so expensive in Connecticut is because it’s a state that just doesn’t build enough housing.”

Armstrong-Crockett, who once lost her home due to a subprime mortgage loan, advocates for increased down payment assistance and other programs to help low-income individuals afford homes. This way, Black people with lower incomes or less family wealth could buy homes without resorting to subprime loans.

Otherwise, she warns, homeownership will remain out of reach for many Black families.”It feels unending,” Armstrong-Crockett said. “Just a lot of barriers that you have to get through in order to reach this goal.” Source: CT Insider