Illinois REALTORS® study shows ‘substantial’ race disparity in mortgage applications

by Emily Mack

A new study by Illinois REALTORS® highlights how race contributes to loan rejections. After reviewing millions of mortgage applications, a “substantial disparity” was discovered in the rates of rejection for African American applicants as compared to white ones — across every year of data. In Illinois, African Americans are twice as likely to have their mortgages denied due to “lack of collateral,” according to the press release from Illinois REALTORS®.
Dr. Marshall Jean, an assistant instructional professor of sociology at the University of Chicago, oversaw the data analysis, which inspected Illinois mortgage applications filed between 2007 and 2020. The team was particularly interested in those rejections based on lack of collateral. In the past three years alone, African American applicants were twice as likely to have their mortgages denied due to lack of collateral.

Commenting on the findings, Dr. Jean said, “Although the phenomenon of home appraisal discrimination has been known in the African American community for decades, there has been very little formal research on it. A key barrier is a lack of available data, which tends to be held by financial institutions and entities like Fannie Mae and Freddie Mac. There are privacy concerns, but those can be addressed with care. The first step to preventing discrimination in appraisals will be a better scientific understanding of it.”

Another trend was also apparent in the data: Neighborhood homogeneity is favored by appraisers. White borrowers were more likely to have their mortgages denied if they lived in diverse neighborhoods while Black and Hispanic borrowers were less likely to have mortgages denied when living in diverse neighborhoods. And the pattern remained across socioeconomic strata.

“It is very important that we get to the bottom line and eradicate these remaining vestiges of systemic injustices from the real estate appraisal and home loan process as soon as possible,” said Lutalo McGee, the chair of Illinois REALTORS® Discriminatory Appraisal Task Force. “This affects everyone, and we all need to be concerned that it still exists. Think about this being your grandmother’s hard earned nest egg being stripped away. Or you and your spouse struggling and sacrificing only to have your financial gains eroded for no factual reason.”

Dr. Jean also noted that he would like to expand the study to offer a deeper look at the home appraisal process.

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